We have many different state funds in Malaysia, and often many are confused as to what they do and how they operate. I thought I’ll make a thread to explain

(1) Khazanah is a catalytic development fund that has been designed to align itself with the country’s policies. That’s why we have the PM as chairman ..

.. Khazanah received a seed injection upon inception in early 90s & since then had to raise money from
(i) raising debt
(ii) selling down stake ..

Unlike other sovereign wealth funds that Khazanah often gets compred to, Khazanah does not receive cash injection from the govt ..

.. hence it’s vital that Khazanah continues selling assets (non strategic assets) in order to make new investments and continue paying the govt dividends, that has been agreed upon

(2) Within the pension fund, there are two systems;
(i) defined contribution (EPF) &
(ii) defined benefit (KWAP) ..

.. defined contribution is a system where both employee & employer contribute

Defined benefit is a system where the employer pays for the pension (in this case the government) ..

.. the investment challenge within the pension fund system is the asset & liability matching where the money coming in monthly needs to be deployed to be invested in a manner that would be enough to sustain one’s retirement (asset allocation)

(3) Unit trust - this is PNB, which is just like any other unit trust fund put there, albeit a very large one. Unit trust can be in many forms, dividend paying or capital appreciation

The common thing about the three examples above is that they may overlap in certain investments; eg. Investing in same sectors, stocks, countries ..

.. but how the funds are managed is completely different because each has its own payment obligation, different ways of receiving money, and importantly different mandates (and end objective)

How does this compare to other countries? Unfortunately every country has different systems given each are at different stages of economic development, and focus. There’s no one optimal system.

But let’s take Singapore for example. CPF is the EPF equivalent. But unlike EPF which has no limit to absolute amount that can be contributed, CPF caps it at S$5k per month in total employer & employee contribution ..

.. This was done to avoid a situation where the fund size gets unequally disproportionate. The aim was that CPF money is to help in basic retirement, buy HDB but not really to go beyond that

Temasek - probably closest to Khazanah in some ways but more diversified asset class wise. Also holds some key strategic national assets, like Khazanah does.

GIC - the national fund manager. The Singapore govt through various agencies outsourced the management of money to GIC who receives a management fee for the service. This structure allows one firm to centrally manage money (with different mandates / objectives) ..

.. this also reduces the need to duplicate investment teams across each investment entity. GIC focuses on managing money, across different asset classes, with one ultimate client, the government - END