Malaysia’s largest civil servant pension scheme, KWAP, plans to invest RM20 billion ($7 bn) into transition assets, focusing on renewable energy, sustainable infrastructure and innovative clean technologies.
Unveiling the plan at the KWAP Inspire Conference 2024 in August, KWAP’s chief executive officer, Datuk Nik Amlizan Mohamad, stressed that environmental, social, and governance (ESG) principles are at the core of both the fund’s community outreach and investment strategies.
Achieving Net Zero 2050
He said the commitment aligns with the country’s MADANI Economy Framework, and highlights KWAP’s dedication to fostering a low-carbon economy.
The pension fund, which had RM169.8 billion under management, has been actively championing ESG principles within its operations, with a pledge to achieve a net zero portfolio by 2050. Its strategy aims to mitigate the impacts of climate change, safeguard the planet’s habitability, and enhance the long-term value of the fund’s investments.
“At KWAP, ESG is not just an aspiration – it is a core operational principle guiding both our community outreach and investment strategies. We are dedicated to championing ESG principles with clear targets, including substantial investments in renewable energy projects, sustainable infrastructure and innovative clean technologies,” Nik Amlizan said.
“Our goal is to drive meaningful changes in the transition to a sustainable economy while ensuring strong returns for our stakeholders. Beyond investments, we are implementing comprehensive sustainability programs within our organisation, reducing our carbon footprint and promoting environmental awareness among our employees and stakeholders.”
At the conference, described as part of KWAP’s support for Malaysia’s National Energy Transition Roadmap (NETR), the retirement fund unveiled plans to reduce greenhouse gas (GHG) emissions by up to 45 per cent by 2030 and to achieve net zero by 2050. Nik Amlizan said: “As we move forward, KWAP will continue to lead by example, demonstrating that responsible investing is not just ethically sound. It is also economically prudent in our rapidly-evolving global landscape.”
Infrastructure: A New Asset Class
The allocation to a transition economy is incremental to KWAP’s increased allocations to alternatives, including infrastructure. Last year, the fund committed RM6 billion. Of this, RM2 billion will go into infrastructure which, until now, has been overshadowed by other asset classes.
On its website, KWAP currently lists its current investment portfolio under equity, private equity, fixed income and property. Infrastructure is not there, indicating that it is a new asset class for the retirement fund, established in 2007, to manage contributions from the Malaysian government and relevant agencies on behalf of employees.
KWAP has flagged a shift into more direct investment across three asset classes – private equity, infrastructure and property.
The latter is one of the more-established asset classes. KWAP now has a portfolio that straddles several markets across Australia, the United Kingdom and the United States. The portfolio includes office buildings, shopping malls, logistics facilities and purpose-build student accommodation. Core criteria in all these investments is to derive consistent stable returns from rental incomes and capital gains.
Real Estate Assets to Double
With an overall lift in alternatives, KWAP intends to double its real estate assets under management by 2025. Over the long term, the expectation is that the real estate allocation could make up as much as 10 per cent of the overall portfolio.
In the property sectors, logistics is currently an asset of choice for the obvious reason that this sector continues to enjoy growth, particularly in the wake of the COVID pandemic, which saw online retailing soar to new heights.
Investing in Logistics Platforms
KWAP’s latest investment in September 2024 is a commitment to a partnership that owns some $3.2 billion of the portfolio, consisting of 11 prime logistics assets in Australian capital cities.
KWAP has chosen not to disclose its involvement but [i3] Insights has confirmed with sources familiar with the transaction that KWAP has joined Japan’s Hankyu Hanshin Properties Corp to inject a total of A$536 million into a partnership, managed by the pan-Asia logistics group ESR.
KWAP and a local subsidiary of Hankyu Hanshin bought out the interest from ESR in the vehicle, now known as Logos Australia Core Portfolio. The manager invested with capital from its balance sheet to launch the club in 2014 with its partner, a wholly-owned subsidiary of the Abu Dhabi Investment Authority (ADIA).
We are dedicated to championing ESG principles with clear targets, including substantial investments in renewable energy projects, sustainable infrastructure and innovative clean technologies – Datuk Nik Amlizan Mohamad
KWAP is familiar with the Australian logistics market which it first entered in 2014 when it mandated Logos, now absorbed into ESR, to establish a logistics portfolio of industrial assets in NSW and Queensland. The assets were valued at around $220 million back then.
Its leaning towards logistics is again evident when in May 2024, it became a cornerstone investor in a RM1 billion for its first logistics fund in Malaysia. KWAP became an investor in the Shariah-compliant fund sponsored by Sime Darby Property and Logos Property. The fund was launched to hold a portfolio of prime logistics assets in Malaysia.
A number of local Malaysian institutional investors – Permodalan Nasional Berhad (PNB), Great Eastern Life Assurance (Malaysia) Berhad and TA Islamic Private Investment Fund also participated in the Shariah-compliant logistics platform.
The fund focuses on key logistics, e-commerce and cold-chain sectors, aligning with global trade trends and supply chain advancements. Its pipeline of acquisition will come from projects developed by the Sime Darby-Logos (SDPLOG) joint venture, which was established in 2021. Their charter is to continue to pursue opportunities to develop sustainable, large-scale industrial and logistics real estate in Malaysia that is certified to green building standards.
The first projects to go into the fund are the 177-acre E-Metro Logistics Park, located within Sime Darby Property’s mature township of Bandar Bukit Raja, which will total 8 million square feet of gross lettable area on completion. Construction for Metrohubs 1 and 2, with around 1.2 million square feet and around 800,000 square feet respectively in GLA, is under way at E-Metro Logistics Park. Metrohub 2 is slated to be completed in the first half of 2024, with Metrohub 1 on track to complete at the end of this year.
Partnering with PNB and EPF
In October last year, KWAP joined PNB, a Malaysian government investment agency, and the Employees Provident Fund, the country’s private sector pension fund, to co-invest in a high-quality and high-specification industrial real asset in Kedah. Each investor has an equal share in the transaction, which involved a sale and leaseback agreement valued at RM2 billion with OSRAM Opto Semiconductors, a wholly-owned domestic subsidiary of Austria-based OSRAM AG, a leader in intelligent sensors and emitters.
At the time, KWAP said the transaction offered a unique opportunity for it and its partners PNB and EPF to achieve “competitive” returns. The investment is for a 10-year period, with a clear exit strategy.
Further, KWAP said the investment catalysed foreign direct investment by enabling its partners to deploy more capital in Malaysia. This aligned with one of the goals of the Madani Economy Framework, which aims to establish Malaysia as a leading Asian economy and to enhance its global competitiveness, resulting in high-impact growth investments for the country.
Foray into Offshore Property
The KWAP property portfolio also includes a distribution centre at Erfurt in Germany acquired in 2017.
KWAP made its foray into property with the purchase of an office building in London in 2012. The UK now hosts the largest number of KWAP’s real estate assets – among them purpose-built student accommodation in London, Edinburgh, Birmingham, Leeds and Sheffield.
At home, KWAP now owns two office towers in the Malaysian capital, Kuala Lumpur, and a shopping mall in the southern state of Johor.
The retirement fund operates KWest, a wholly-owned subsidiary, to act as an investment platform for real estate development as part of its strategy to diversify further into alternative investments with higher returns.
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[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.