KUALA LUMPUR: Lembaga Tabung Angkatan Tentera (LTAT) chief executive officer Datuk Ahmad Nazim Abdul Rahman has been having his work cut out for him for the past nine months as he oversees the tall order of transforming the armed forces retirement fund into a world-class fund.
“It has been challenging but I do enjoy the restructuring and turnaround work. I spent some years of my career in private equity and corporate finance, so a large part of my work has revolved around restructuring activities,” he said.
Ahmad Nazim has two decades of experience in corporate finance and investment. Prior to joining LTAT, he was based in Singapore and the United Arab Emirates as managing director of South-East Asia of Allied Investment Partners, an investment and advisory firm.
He also served as CEO of Pelaburan Mara Bhd from 2013 to 2018, was a pioneering member of the board of the National Bank of Abu Dhabi (M) Bhd, and is currently a member of the boards of the Energy Commission Malaysia, Perbadanan Tabung Pendidikan Nasional Bhd, Boustead Holdings Bhd, and Boustead Heavy Industries Corp Bhd.
He studied economics and public policy at Sciences Po in Paris and was a J. William Fulbright scholar at Georgetown University where he received his Master of Laws. He read law for his first degree at the International Islamic University Malaysia.
Since reporting for duty on June 15, 2021 as the fund’s CEO, Ahmad Nazim has hit the ground running to overcome the challenges faced by LTAT, especially on a few critical matters that required immediate attention.
Nine months into his role, he has accelerated LTAT’s transformation journey to stabilise the fund, rebalanced the investment portfolio, provided clarity on LTAT’s mission, and strengthened the fund’s governance, internal processes, and controls.
The immediate result of the transformation could be seen in the declaration of a dividend rate of 4.1% for the financial year ended Dec 31, 2021, an increase from 3.5% in 2020 and the highest since 2018.
It was the first step forward in steering the fund towards delivering a sustainable and competitive return for the Malaysian Armed Forces.
“I would like LTAT to develop into a world-class retirement fund, which means that we have to be driven by a clear mission and strategic objectives, that is to generate investment returns backed by a strong foundation in governance.
“In the overall scheme, the mission should, in the long term, provide a stable return on the pension funds of the armed forces and give them the necessary financial and social security upon their retirement,” he said.
Transformation plan, SAA framework
According to Ahmad Nazim, LTAT will continue to enhance its prospects through its transformation plan, premised on strengthening and rebalancing its investment portfolio while improving its organisational structure, risk management, corporate governance practices, internal processes as well as human capital development.
“At the moment, the transformation plan is moving in the right direction,” he said, adding that there are two key initiatives that will drive the transformation and strengthening of the governance of LTAT this year, which include the proposed amendments of the Armed Forces Fund (TAT) Act 1973 as well as the operationalisation of the strategic asset allocation (SAA) framework.
“The TAT Act has not gone through any major structural change since its establishment and the current provisions are overly stringent and may not be relevant in current times.
“Therefore, we had accelerated the process for the amendment since last year, so this year we should be able to have the TAT act amended,” he said.
The amendment will also improve LTAT’s plan to turn around the fund according to its SAA plan, he added.
According to Nazim, the SAA framework is an investment plan which sets the long-term direction towards better diversification of the portfolio. It also gives a clearer idea of where to invest and how much to invest over the long term.
“The key idea of the SAA framework is to move away from investing largely in illiquid assets into more liquid assets as well as income-generating assets (local and international) but at the same time getting ready for opportunistic investments to enhance returns.
“For example, co-investments with local and international asset managers, including other government-linked investment companies into private equity and real estate funds and in defence-related sectors through our investee companies to increase synergy between LTAT’s investments in the defence eco-system.
“SAA will be the backbone of our long-term investment strategy and will guarantee sustainable and competitive returns to its contributors, comprising the Malaysian Armed Forces,” he said.
Commenting on the key desirable outcomes by meeting the SAA target, Nazim said the plan was to reduce the risk of LTAT not being able to declare a competitive dividend rate on annual basis over the long term.
“The minimum return that should be declared over the years is equivalent to the fixed deposit rates plus 1.25% (fixed deposit rate plus 1.25%) which is believed to be a stable and sustainable dividend rate.
“We will also strengthen the LTAT investment portfolio’s ability to withstand short-term volatility in the capital markets and economic downturn as well as ensuring that the fund solvency is at an appropriate level appropriate for a retirement fund which takes a long-term view,” he added.
LTAT’s portfolio is highly concentrated, with 30% and 16% of about RM10bil of assets under management exposed to Boustead Holdings Bhd and its subsidiaries and Affin Bank Bhd, respectively, both of which (Boustead Holdings and Affin Bank) are deemed highly illiquid and not generating as much income as before, according to the fund.
Thus, currently, LTAT can only rely on about 20% of its portfolio which is liquid to generate all the income required to declare a competitive rate of dividend for its members. Rehabilitating the portfolio will take many years and is still a work in progress, he said.
“Yes, it’s been a very challenging nine months because, on top of the concentration of portfolio, we are confronting the issue of Boustead Naval Shipyard and the Littoral Combat Ship project which has been delayed since 2019.
“The failure to revive this project will have a financial consequence, effectively creating a domino effect for the whole group that will cause major financial losses to LTAT and hinders our ability to provide dividend returns for the next few years. This is mission-critical for us,” he explained.
Focus for 2022 - Mission 5:50
When asked about his focus for 2022, Ahmad Nazim said the fund’s mission is 5:50, which means to achieve a 5% dividend payout from 2022 onwards, in conjunction with the fund’s 50th anniversary, which falls on Aug 1.
He said LTAT is optimistic to strive for a higher dividend target this year, guided by the company’s strategic SAA framework, and that the fund will also focus on initiating investments in international public equity and diversifying its fixed income portfolio by investing in corporate bonds and sukuk.
“Specifically, in June 2021, LTAT made its foray into government bonds – the traditional and essential investment in a retirement fund to preserve capital and provide a guaranteed income stream,” he said.
“Concurrently, LTAT will continue to restructure and reposition its illiquid investments aligned to the SAA to optimise the return at the tolerable risk level.”
At the moment, LTAT’s exposure to public equity and fixed income stood at about 42% and 8% respectively, he added.
Asked whether he plans to increase fixed income exposure, Ahmad Nazim nodded and said: “Of course, based on the SAA framework, we should be able to increase to 20% exposure in the next few years. But the focus for this year is to expand our investment in public equity, to include international markets.”
Moving forward, Ahmad Nazim said that LTAT’s performance should not be benchmarked against its historical rates but must be viewed on what is sustainable over the long term, relative to the prevailing market performance as well as benchmarked against dividend rates declared by other retirement funds. — Bernama