Why you should expect to see more Malaysian transactions

Malaysia’s government under Prime Minister Mahathir Mohamad has been slowly implementing reforms around economic management, governance and anti-corruption since it came to power in a shock election win over a year ago.

Restructuring of government-linked companies, including the sovereign wealth fund Khazanah Nasional and the country’s largest pension fund Employees Provident Fund is part of the plan. As these changes are put into motion, private real estate managers should expect to see Malaysian investors become more transactional – both on the buy and the sell sides, domestically and internationally.

Take EPF’s case: after running a request for proposals process last July, the investor has handed over its domestic asset management duties to London-based broker Savills and its manager Savills Investment Management, believed to be the first asset management contract by a Malaysian government-linked company, three sources involved in the process told PERE. Savills’ duties involve reviewing EPF’s 40-asset investment portfolio worth around 3.3 billion ringgit ($786 million; €710 million), providing portfolio management and underwriting future transactions.

Another source described the portfolio as a mixed bag, including prime assets in Kuala Lumpur and other regional assets, some of which would be put on the market. Meanwhile, EPF continues to be an overseas buyer, committing around $70 million to an open-end property fund managed by Dexus in Australia, and is part of several bidding rounds elsewhere globally, according to one broker. The Malaysian investor also made a debut in PERE’s soon-to-be published latest ranking of the top 50 institutional real estate investors at the 40th spot.

Khazanah Nasional, meanwhile, has also been going through an overhaul after being scrutinized for its alleged role in 1Malaysia Development Berhad, a government-run strategic development company, from which former prime minister Najib Razak was accused of channeling hundreds of millions of dollars into personal bank accounts. After losing the 2018 elections, Najib Razak stepped down as the fund’s chairman followed by the resignation of the board.

Since then, a new board has been appointed and the fund started a divestment drive, using proceeds to pay off debt obligations as well as make new investments. Just last week, the fund partnered with the Singaporean investor Temasek in the sale of the Andaz hotel in Singapore for $346 million, reportedly pegged as the highest priced-hotel asset sale in the city-state this year.

While Malaysian investors may not currently be on the must-dial lists for institutional real estate investors and managers, their relative increase in activity could well see that change. In the 12 months to Q1 2019, Malaysian investors made an estimated $1 billion in outbound capital flows, the same as Australian investors. That total was also a 34 percent increase on the previous year, according to a report by London-based broker Knight Frank.

Given this overhaul, managers looking to extend their investor relationship base in Asia, or add South-East Asian assets to their regional exposures should bear this repositioning by Malaysian investors in mind as they go about making their choices.

Write to the author Arshiya Khullar at akhullar@peimedia.com