KWAP posts record 2017 gross income, warns of market volatility

KUALA LUMPUR: Kumpulan Wang Persaraan (Diperbadankan) (KWAP), Malaysia’s second largest pension fund, has warned of market volatility arising from the general election affecting its investments, after managing a record gross income of RM9.03 billion in 2017.
KWAP reported a 42% increase in gross income to RM9.03 billion in 2017 against RM6.36 billion in 2016, the highest since its inception in 2007, driven by better investment income.
The highest ever gross income was achieved on the back of improved gross return on investment to 5.77% in 2017 from 5.35% in 2016.
KWAP CEO Datuk Wan Kamaruzaman Wan Ahmad (pix) said: “2018 will be a critical year as the nation makes a significant decision on the future of our nation for the next five years. Market volatility tends to be higher during such a period compared with normal times.
“Therefore, our investments will be subject to the volatility as fear and greed of investors will impact more than earnings, so we’re ready for that,” he said at a press conference in announcing the fund’s financial performance here today.
Investment income remained the highest contributor (69%) to the pension fund, followed by employers’ contribution (27%) and the portion from the federal government (4%).
KWAP’s assets are allocated in fixed income (46%), equity (40%) and alternative investments (14%). Alternative investments comprise real estate (10%), private equity (3%) and infrastructure (1%).
Nonetheless, Wan Kamaruzaman said the pension fund is reviewing its strategic asset allocation with more exposure in the equity and alternative investments but less exposure in the fixed income segment.
“It’s a bit of tweaking, probably a little more investments in the alternative space and slightly higher in the listed equities ... in the low interest rate environment, fixed income investments are not giving us returns that are commendable to the previous track record.”
Despite the expected market volatility, he said, KWAP is confident of growing its total fund size to RM150 billion by year-end from RM140.8 billion at end-2017.
“It depends on the market but it is an achieveable target. We’re hoping to do better and we always outperform.”
Sector-wise, Wan Kamaruzaman said KWAP remains optimistic on the banking and telco sectors. For the technology sector, which has gone through a correction, the pension fund will set its sights on the global market.
“We still like the technology sector. There are not many local tech companies, but on the global front, we do have specific US investment mandate to look at some of the stocks in the tech sector, but it must be within our risk appetite,” Wan Kamaruzaman said.
To support the government’s initiative to promote liquidity and trading vibrancy in the small and mid-cap segment, he said, KWAP will expand its coverage of the small-cap universe, but limited to 1% of total allocation.
The pension fund is also looking to increase its exposure in overseas markets. Currently 87% of its investments are parked locally, with the balance spread across 31 countries.
KWAP’s total collection rose 5% to RM3.51 billion in 2017 comprising RM3.01 billion pension contribution and RM500 million from the government.