Friday, July 2, 2010

Ekuinas: RM5 billion

Ekuiti Nasional Bhd or Ekuinas is a fund set up by the Federal Government in September 2009 using taxpayers' money for the purpose of pursuing the social objective of raising the bumiputra equity and participation in business, according to chief executive officer as reported in the Star on 28 June 2010.

Ekuinas already has an initial capital of RM500 million. Under the 10MP, it will receive RM3.5 billion in three separate funds, RM1 billion in outsourced funds. In all, it will have RM5 billion to invest.

The three funds of RM3.5 billion will invest in mid-sized companies with good growth potential. Typically, these will be companies that are poised for expansion after having developed their markets. Investment sizes of RM30 million minimum.

The RM1 billion funds will be outsourced to investment managers/partners who will invest in doses of not more than RM15 million. These investment partners must put in 20% of their own funds into the investments.

Ekuinas targets an average return of 12% per annum on its investments. To invest for five year, to "simmer" for seven years if need be.


The motivation is faulty in the first place for it uses public money to pursue a narrow agenda. Will Ekuinas pay back the Federal Government plus interest for the money it is using to make investments? Or, if the investment funds then grow to say RM10 billion, Ekuinas will claim the whole RM10 billion to belong to bumiputra ownership? What if Ekuinas lose money; will the general public then be made to pay for the misadventure? Is this what cutting back on the subsidies for the general public going to generate extra funds for such a pursuit?

The whole modus operandi is nothing but plain old venture capital, or what is now called private equity. But this is not private equity, this is public equity. The whole purpose of disintermediation away from banks and into private equity is for the private sector to take more risk in new ventures to explore new products and new markets in order to obtain returns higher than normal.

This is not the first time that Malaysia experiments with venture capital, the last one was Mavcap of which we have not heard much of now.

I am weary of such funds operating. This is in addition to Khazanah and 1MDB. If they can expand the market outreach of the Malaysian economy, then one may be able to give some concessions for such blatant ideas of financial engineering. But if they are going to make foray into foreign corporates, then I see no purpose in such funds. We are giving a sizeable portion of our precious scarce financial resources to a bunch of young people who have just out of educational institutions wearing red ties and dark suits sitting on leather chairs to play legos with.

What happens to our banking system, to our private sector, to our corporate leaders - as our financial leaders have awards heap upon them while the Malaysian private sector lay in ruin. These funds jeopardise the functioning of our funding and investment systems.


hishamh said...

Just a FYI:

Venture capital - investment in startups/small companies, build them up, and exit with a profit

Private equity - investment in existing businesses, restructure them, and then exit with a profit

Ekuinas doesn't seem to fit either model very well. When the news first broke, I originally thought it was VC - which was fine for the intended purpose.

But their MO is more PE, which doesn't really make much sense at all in terms of building up bumi businesses.

Anonymous said...


Come on, the true modus operandi of all these Malay bumiputra-assist fund/operation/institution is all boiled down to just simply this;

Your(all non-malay's)money is my money. My money is my money.

That should also answer yr query about the possible profit of Ekuinas. It will be WHOLLY belongs to Ekuinas. Pay back? What pay back? PERIOD.

Remember, Bank Bumiputra? Setup using public fund. Bailed out using public+Petronas money. Died, without paying a single cent back to the public!

Same thing with Bank Islam's recent fiasco.

Dig deeper, more shit will come out. In bolihland, SSDD is the ongoing show. However, it'll not be perpetual as the usable fund is running out fast. The consequences is another story, though.

walla said...

It is indeed a strange animal. Objective is to hold wealth institutionally but operation is specific private placements using public money without stakeholder inputs.

Thus control measures are needed. There must be a cut-off point, and the dispensing criteria should be as rigorous as those for commercial banking in which case one wonders why not commercial banking in the first place.

And in this case, transparency should also be exercised to prevent politics from influencing the selection which may degrade to bailouts or bourse ballasting later, thus giving the mechanism a short lifespan.

But then again how can investments be strategic ahead of a market if open to scrutiny?

So a watchdog mechanism has to be appended made of publicly-minded senior investment experts and auditors who know the in's-and-out's of due diligence and corporate governance, as carved by the last thirty years of politicized businessing, Malaysian-style.

But if that has not been done for bigger operations like those of Khazanah, what chance has it to be done for this mini-khazanah in all but name?

semuanya OK kot said...

How many organizations have been set up with public money for "raising the bumiputra equity and participation in business"? How does public money transform into Bumiputra capital? What has been the benefit to Orang Asal and the Bumiputra of East Malaysia?

The HQ of the ruling party was financed by a loan from a public bank, since written off. Anyone from Mars who does not know the details can read Malaysian Maverick.

etheorist said...

Thanks, hish.

PE has carved a niche from the VC of years ago.

Anonymous said...

This is just another rip off. Make hay while the sun shines. There may not be a tomorrow so lets clean up the coffer while there is some money left.
pak tua

Jabb said...

Who needs more money to be managed by a bunch of non entrepreneurs dispensing business advice and loads of money in the name of strengthening bumiputra equity participation? Accountability is not a mere matter of ensuring practicing good corporate governance and transparent reporting schemes; it's also about putting your money where your mouth is. These guys are merely custodians and what is stopping them from inking dubious deals and what is even more worrying is the quantum of funds they manage far supersedes those managed by the likes of MAVCAP, another non-entrepreneurial VC.

VC an PE is about investing in the future, whether in enhancing competency, market penetration, value perception and eventually capacity building. There's plenty of money in town and I don't see the point why we need another institution like Ekuinas.

We need collective effort from all stakeholders, namely government, businesses and associations to go beyond articulating glossy plans and take real action! We are just duplicating our efforts over and over again and as a result we never get far beyond where we started. For a country blessed with resources like ours, we certainly should have achieved a lot more compared to our southern neighbor. Perhaps they do have what it takes to be a successful nation in every sense of the word.

We continue to be in denial and our leaders will try every means and ways to hoodwink us. This latest offering in the form of Ekuinas is just another form of duplicity which, I hope not, could be a long term disaster in the making.

walla said...