Quora Answer: What Happened with Malaysia’s Sovereign Wealth Funds?

The following is my answer to a Quora question: “What happened with Malaysia's sovereign wealth funds?”

In a nutshell: corruption and mismanagement.  As of the end of last year, Malaysia’s sovereign wealth fund, Khazanah Nasional Bhd, posted a pre-tax loss of RM6.27 billion in 2018.  This is in contrast to a pre-tax profit of RM2.89 billion a year earlier.  Even then, we cannot trust their accounts since net worth adjusted (NWA) declined by 21.6% to RM91 billion, from RM116 billion end 2017.  Realisable asset value fell to RM136 billion from RM157 billion in that same period.  This means, despite the fact that they supposedly posted a profit at the end of 2017, the value of assets adjusted fell by more than a fifth.

Despite this spectacular failure, the fund still declared a dividend of RM1.5 billion for 2018.  This calls into question the credibility of the management team.  Even when the NWA posted a return of 11% over the last decade, it is still not spectacular.  Fund placements in tranches of US$100 million could have easily brought in far more, for example.

Another point to consider is how tiny Malaysia’s sovereign fund is, considering the wealth of resources the country has, and the protected nature of the market.  Khazanah’s assets are just over US$20 billion.  In contrast, Singapore’s Temasek has an estimated US$250 billion.  Where did all that money go?  Malaysia has no good reason to be struggling financially.