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ENRICHING PERFORMANCE AND COMMITMENTS ENRICHING ACCOUNTABILITY AND INTEGRITY ENRICHING RESILIENCE AND SUSTAINABLE GROWTH OTHER INFORMATION

PRIVAtE MARKEtS RISK MANAGEMENt SuStAINABILItY RISK MANAGEMENt
KWAP’s private market investments consists of Private Sustainability risk is defined as the potential negative
Equity (PE), Infrastructure and Real Estate. impacts on the profitability of the organisation, arising
from an adverse sustainability impact and the climate
Private Equity and Infrastructure
impact.
Risk management of PE and Infrastructure investments Recent years has seen sustainability and ESg
were typically concentrated in the pre-appointment concerns come to the forefront of global, national and
evaluation of its managers/partners and investment organisational zeitgeist. In supporting the national
strategies. getting the right managers in is the key to sustainability agenda, KWAP designed the KWAP
building a successful, healthy private market investment Sustainability Roadmap.
portfolio. Post-investment activities concentrated on
operational risk management and monitoring of the The roadmap itself spells out our sustainability
funds with potential red flags as well as to possible commitments to deliver five Sustainability Pledges.
write-offs. The ability to exit in PE and infrastructure The Sustainability Risk Framework (Framework) and
investments post investments are severely limited due Sustainability Risk Policy (Policy), which were established
to the illiquid nature of the asset class, therefore active in 2023, are the governing documents that serve as
monitoring and management is the key to maintaining a guardrails for this KWAP Sustainability Roadmap.
healthy portfolio.
The Sustainability Risk Framework and Policy are crucial
We are constantly developing our knowledge and skills elements for integrating sustainability risk into our ISO
to improve risk management of these markets as interest 31000-compliant Enterprise Risk Management process,
has grown over the years and it has become more as it allows for a systematic approach to identify,
attractive for investors as opposed to traditional asset assess and respond to sustainability risks in investment
classes such as public equity and bonds or other fixed and business operations to ensure our sustainability
income instruments. objectives are met. In brief, the Sustainability Risk
Framework and Policy address ESg and climate-related
Real Estate
risks, its regulatory contexts, sustainability risk principles
KWAP’s real estate investments are diversified both as well as responsibilities and risk management
domestically and internationally. Portfolio construction oversights.
is important in this space, portfolio diversification By establishing and adhering to the Sustainability Risk
by geography and sector asset types provides risk Framework and Policy, we can better demonstrate our
diversification and naturally reduces the sum of commitment to the nation as well as our own sustainability
individual property risk to a lower portfolio risk level. The goals through proactive approaches to identify and
properties’ holding period are long term in nature, hence manage all forms of associated sustainability risks.
the risk is structural as opposed to transactional. Besides
being exposed to the movement on real estate prices, COMPLIANCE
management of the rental leases and overhead costs
are also important in maintaining a sustainable income The compliance function remains a very important core
stream. Risk management activities for real estate function in KWAP. Failures of the compliance function
investment portfolios are focused on pre-investment in high profile cases in Malaysia and abroad has
assessment vis-à-vis independent risk review, as well as highlighted the impact, both financial and reputational,
post-investment monitoring vis-à-vis risk limits. of non-compliance.

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