Pelaburan Mara Bhd (PMB) is set to move into the private equity space with a planned investment of US$25 million (RM79 million) as seed capital in soon-to-be launched Basil Fund in partnership with the Al-Rajhi Group of Saudi Arabia.
The Shariah-compliant Basil Fund will be jointly managed with AEP Investment Management Pte Ltd (AEPim), a Singapore-based investment management company owned by the Al-Rajhi Group that specialises in cross-border real estate investment strategies.
“The key feature of the fund will be to provide a minimum guaranteed net yield of 5% and a 15% internal rate of return. The money will be invested in assets like data centres, industrial parks, office buildings, etc that are secured against long leases with major corporate and government tenants,” PMB group CEO Nazim Rahman told The Malaysian Reserve last week.
The Al-Rajhi Group, which is involved in Islamic banking in Malaysia via Al-Rajhi Banking & Investment Corp (M) Bhd, will invest US$25 million in the Basil Fund while talks are ongoing with investors from Brunei and Qatar to become cornerstone investors to raise the fund size to US$200 million, he said.
“The initial capital raised will be US$100 million. We plan to launch the fund next month and acquire the target assets. With an income stream in place, we aim to double the aggregate committed capital to US$200 million and with a gearing level of 60%, bringing that total asset size to US$500 million by the end of 2014,” he said.
The assets will be acquired in mainly developed markets, he said without disclosing the targets, adding the cornerstone investors’ exit period is five years.
With this move, PMB will join other government-linked companies (GLCs) and institutions like the Employees Provident Fund board (EPF) and Ekuiti Nasional Bhd in investing in private equity investments.
Operating a multi-jurisdiction Shariah-based private equity fund such as Basil would be nothing new for AEPim.
Incorporated in 2008, its current mandates include the management of Securus Data Property Fund Pte Ltd, which is the world’s first Shariahcompliant data centre fund jointly sponsored and managed with Singapore-listed Keppel Telecommunications & Transportation Ltd.
This US$200 million fund, which has Tabung Amanah Islam Brunei as a cornerstone investor, to date has acquired six data centres in places like Cyberjaya in Malaysia, Australia, Holland, Ireland and the UK.
Globally, the private equity firms lead in terms of merger and acquisition (M&A) activity in 2013 with a total value of US$104 billion worth of deals of the total US$244 billion worth of M&A transactions to date, according to Bloomberg data. In Malaysia, there have been three major investments this year totalling US$100 million.
The foray into the private equity field will not be confined to a single fund for PMB.
“We also want to tap investment opportunities in infrastructure, oil and gas and technology fields, through working with institutions like the Islamic Development Bank,” Nazim said.
Apart from the private equity, PMB also intends to move into the financing business with the takeover of a leasing firm, said Nazim, who joined PMB as CEO in mid-July 2013.
The group intends to move in a small way into the business of Ijarah-based leasing of industrial machinery and equipment buy with an initial capital outlay of about RM50 million. The leasing business aims to provide machinery or vehicles to government agencies, which would help lower the financial burden on the government.
“We want to grow our core asset management business under ASM Investment Services Bhd from about RM500 million now under 14 funds to about RM1 billion by end of 2014. We want to grow the equity fund size and all will be made Shariah-compliant. We might start a sukuk fund as well,” he explained.
ASM is a pioneer in the local unit t rust industry and launched its first fund in 1968.
The bulk of the money under management is invested in blue chip counters on Bursa Malaysia but unlike other government- linked funds like EPF or Permodalan Nasional Bhd, ASM’s stake in the companies are minority stakes.
PMB, formerly known as Amanah Saham Mara Bhd, was incorporated in June 1967 as a wholly owned subsidiary of Majlis Amanah Rakyat (Mara).