External Fund Management

External Fund Management (EFM)

About EFM Department

The objective of EFM Department is to plan, implement, monitor and report on the investment activities of KWAP managed by the external fund managers.

Principal Activities


	Develop action plan to invest KWAP’s fund with external fund managers domestically and internationally via approved external equity fund managers, external fixed income fund managers, and private equity funds and in unlisted entities. Implement investment activities as approved by the Investment Panel and the Board. Monitor investment activities and evaluate performance of the external fund managers and unlisted entities periodically, including attending meetings with fund managers and committees established for the purpose. Report periodically investment activities and performance of external fund managers and unlisted entities to the Investment Panel and the Board. Develop, maintain and revise appropriate Standard Operating Procedures for the operation of EFM Department. Strive to meet targeted income for the year on investments under the purview of EFM.

List of External Fund Managers

Equity

CIMB-Principal Asset Management Bhd
Avenue Invest Bhd
Aberdeen Asset Management Sdn Bhd
Nomura Asset Management Sdn Bhd
RHB Investment Management Sdn Bhd

Fixed Income

CIMB-Principal Asset Management Bhd
AmInvestment Management Sdn Bhd

Private Equity

IDB Infrastructure Fund LP
CIMB-Mapletree Real Estate Fund 1
Actis ASEAN Fund LP
Lombard Asia III
Templeton Strategic Emerging Markets Fund III

Direct Investment

Valuecap Sdn Bhd
Malakoff Corporation Bhd

Selection Criteria for Respective Asset Classes under EFM Department

I.      Equity and Fixed Income (Domestic)
II.     Equity and Fixed Income (International)
III.    Private Equity Fund (Domestic and International)
IV.    Direct Investment - Unlisted Entities

I. Equity and Fixed Income (Domestic)

1. Organisation and Staff

Strength of the asset management company's shareholders; experience of the asset management company's senior management;
Team and staff members; experience and quality of the asset management company's;
Investment team;
Capital size of the asset management company;
Management track record of the asset management company; and
Independent external auditors and internal audit team.

2. Investment Policy and Process

Transparency in investment processes.

3. Risk Management

Effective risk management processes and system.

4. Performance

Commendable historical performance track record in terms of returns compared to peers and benchmark; and;
Consistency of the performance.

5. Client Service and Fees

Reasonableness in fees and other charges and competitive compared to peers;
Availability of in-house research facility and team; and ability to provide KWAP with research reports;
Ability to provide good client services;
Ability to provide reports according to KWAP's requirements; and
Ability to provide attachment training program for KWAP staff members.

II. Equity and Fixed Income (International)

1. Organisation and Staff

Business and organisation strengths like experience in managing similar mandates for a public fund/foundation;
Ownership structure and alignment of interest with KWAP;
Professional advisors;
Qualified and experience staff;
Assets under management; and
Stability and financial strength.

2. Investment Philosophy and Process

Compliance with KWAP's existing investment policies, strategy and guidelines; and
Philosophy that gives competitive advantage

3. Risk Management

Good organisation structure, strong governance and control;
Registration as investment advisor/manager under relevant act of jurisdiction; and
Policies and procedure to address conflicts of interest.

4. Performance

Historical performance track record

5. Client Service and Fees

Good client service e.g ability to provide reports and services according to KWAP requirements.

III. Private Equity Fund (Domestic and International)

1. Organisation and Staff

Quality and experience of key personnel;
Dedicate sufficient time and effort to proposed fund;
Quality and experience of the General Partner (GP) of the fund;
Integrity of GP, staff & other related parties;
Value-added involvement of GPs in the fund; and
Relationship with relevant contacts within the investment community.

2. Investment Philosophy and Process

Clearly defined policies and transparent process;
Reasonable capital committed by GPs;
Potentials for co-investment; and
Clear exit strategies.

3. Risk Management

Compliance with requirements of local laws, if any;
Registered investment advisor/manager within any jurisdiction; and
Quality of overall fund management and governance.

4. Performance

Past financial performance of vintage funds
Reasonable distribution and claw-back policy;
Reasonable assurance on achievement of the required returnl
Reasonable risk/reward trade-off; and
Reasonable hurdle rate/preferred return.

5. Client Service and Fees

Standard and reasonable fees;
Periodic reporting on status of portfolio investment; and
Reasonableness of terms and conditions and alignment of interest with LP.

IV. Direct Investment - Unlisted Entities

Historical and future financial strength of the company;
Market position with its relative competitive position within the industry;
Growth prospects of the company;
Underlying stability of the company's business;
Quality and sustainability of earnings;
Dividend payments and its sustainability;
Quality of the company's assets;
Appropriateness of its capital structure including its gearing;
Quality, stability and experience of the mangement team, Board of Directors and other investors;
Quality of financial and operating controls and quality of reporting to management and investors;
Quality of corporate governance and risk management policies;
Return potential of KWAP's investments compared to the risk/return policies of the investment;
Potential for the future follow-on investment opportunities; and
Exit strategy for KWAP.

Asset Allocation by Asset Classes

Asset under external management as at 30 June 2010 amounted to RM3.19 billion representing 4.83% of KWAP’s total fund. Equity investment accounted for 64.1% of the total externally managed assets with fixed income, investment in unlisted entities and private equity funds contributing 17.6%, 12.8% and 5.5% respectively. In terms of geographical exposure, 95.0% of the externally managed assets were invested in domestic markets and the remaining 5.0% is invested globally by foreign fund managers.

FusionCharts

Performance

As at 30 June 2010, EFM Department realized an aggregate income of RM198.07 million, representing an average ROI of 6.49% as follows:

FusionCharts

In terms of fund performance, external fund managers are measured based on ROI, total return, time weighted rate of return (TWRR) or internal rate of return (IRR), tracking error and information ratio. TWRR for the external equity fund managers are compared against the FBM100 benchmark whilst external fixed income fund managers are compared against a customized benchmark based on RAM Quantshop MGS All Index plus a notional 130 basis point per annum.

IRR is used to measure the performance of private equity funds. For the position until 30 June 2010, external equity fund managers registered TWRR of between 3.13% to 11.61% versus FBM100 of 4.03%, and the external fixed income fund managers recorded TWRR of between 2.85% to 4.05% against the customized benchmark of 3.47%.

External Fund Management

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