By Yow Hong ChiehMay 30, 2011 | The Malaysia Insider

KUALA LUMPUR, May 30 — Khazanah Nasional Bhd managing director Tan Sri Azman Mokhtar has admitted to being disappointed by his inability to trim fat from the portfolio he inherited in 2004 due to political interference, the Financial Times reported yesterday.

“We have had our frustrations, and there have been areas, mostly in the regulated sectors such as electricity, automobiles and aviation, where value has stagnated or even declined,” Azman (picture) told the international financial daily.

The Financial Times said that despite scoring a “crushing victory” in a US$3.6 billion (RM10.8 billion) takeover battle with India’s Fortis for Singapore healthcare group Parkway Holdings, Khazanah was still struggling to turn around companies in its legacy portfolio, which includes national carmaker Proton and Malaysia Airlines.

“Big questions remain about Khazanah’s ability to deal equally decisively with the rest of its portfolio, not least because of government opposition to radical surgery on any of its significant companies,” the report said.

“Khazanah’s ability to turn round the biggest legacy companies is tightly bound by government limitations on its freedom of manoeuvre.”

It added that the impact of this “political framework” was evident in the detailed financial information released by Khazanah this year, which showed that the value of newer investments grew by an average of over 20 per cent while older investments only grew by five per cent.

The agency, burdened by a complex and potentially conflicting mandate to grow the portfolio, earn significant returns, lead GLC transformation and help Malaysia become a developed country by 2020, had “significantly less firepower” than other wealth funds, the Financial Times pointed out.

The net portfolio value of Singapore’s sovereign wealth fund Temasek at the end of December was US$149 billion compared to Khazanah’s US$24.6 billion.

Tan Teng Boo, chief executive of Kuala Lumpur-based investment adviser Capital Dynamics, told the daily that while there were many “very capable and committed people” in Khazanah, there were just as many political obstacles to real reform.

Although the investment fund’s portfolio showed “some growth”, he faulted politicians who refused to let Khazanah “do what is necessary” for its failure to transform lacklustre GLCs as mandated.

Azman, however, argued that the agency was fulfilling its mandate for the most part, citing a 39 per cent increase in portfolio value last year, with compounded annual growth of 13 per cent from its level of RM33.3 billion when he took over in 2004.

At the same time, the group has sold its 32 per cent stake in Pos Malaysia, reduced holdings in successful companies such as Malaysia Airports Holdings Bhd and strongly encouraged regional expansion by successful portfolio companies like Axiata and CIMB.

“We are in the seventh year of a major transformation programme, and we have achieved a lot in terms of making the GLCs more efficient while also growing the value of our portfolio and playing our part in helping Malaysia to develop,” said Azman, a former UBS and Salomon Smith Barney banker.

“The GLCs have conclusively improved their performance as a result of the management and other changes we have made, with aggregate earnings for the 20 biggest rising by 49 per cent in 2010 to RM17.3 billion and total shareholder returns of 16.4 per cent since 2004.”