Speaking at a press conference in Parliament here, PAC chairman Mas Ermieyati Samsudin said this was among five key findings outlined in PAC’s report on domestic investments by Khazanah, which was tabled in the Dewan Rakyat today.
Another key finding was the “misalignment” between Khazanah’s mandate to generate commercial returns and its role in driving national development as a sovereign wealth fund, said Mas Ermieyati.
Apart from lacking a standard operating procedure for post-mortem analyses of investments disposed of with losses exceeding a certain material threshold, Mas Ermieyati said PAC also found that Khazanah had layered internal governance processes for investment screening and approval.
Mas Ermieyati said PAC’s fifth finding was that despite its inherently high risk, Khazanah’s venture capital investment strategy was appropriate for achieving its objective as a catalyst for the domestic innovation ecosystem.
She said PAC had four recommendations for Khazanah, including producing post-mortem reports for every divested investment with losses exceeding its initial investment.
Mas Ermieyati said these post-mortem reports, which should outline reasons for the investment’s failure and recommendations for improvement, must be presented to Khazanah’s audit committee and board of directors to ensure accountability and institutional learning.
She also said Khazanah should report on its investment performance, not just its financial performance, in its quarterly reports to the finance ministry.
Another recommendation was for Khazanah to communicate to the public more effectively about the rationale behind its venture capital strategies and opportunities, particularly the high-risk nature of certain investments and the expectation that some of them would fail as part of a broader strategy to drive innovation.
PAC also recommended that Khazanah strengthen its risk management framework to include a deeper analysis of non-financial market shocks, which would allow the company to restructure or exit investments if necessary.
Khazanah’s investment strategy gained attention last October when it was reported that Khazanah and Permodalan Nasional Bhd (PNB) lost RM43.9 million after selling their stake in e-commerce platform Fashion Valet Sdn Bhd for RM3.1 million.
In a written parliamentary reply, the finance ministry said sovereign wealth fund Khazanah (RM27 million) and asset manager PNB (RM20 million) invested a total of RM47 million for minority stakes in FashionValet in 2018.
The ministry said the investment was part of Khazanah’s mandate at the time to foster local technology entrepreneurs and gain exposure in the rapidly growing e-commerce sector.
PNB also wanted to support fast-growing Bumiputera digital retail companies and help them become regional retail platforms for Malaysian brands.
However, the Covid-19 pandemic and challenging fundraising market conditions severely impacted FashionValet’s business, which required significant new capital to continue operations, it said.
FashionValet founders Vivy Yusof and her husband Fadzaruddin Shah Anuar later claimed trial to a joint charge of criminal breach of trust involving RM8 million.
They were accused of misappropriating investment funds entrusted to them by Khazanah and PNB by transferring RM8 million from FashionValet’s company account to 30 Maple Sdn Bhd without the approval of the board of directors.
Their trial is set to begin next April.