GLCs And The Public-Private Nexus

I got a call from a reporter the other day asking about this, so I’m going to set my thoughts down on paper (figuratively speaking, of course).

There’s this idea that government and government linked companies (GLCs) dominate Malaysia’s corporate landscape – Maybank, CIMB, Sime Darby, Tenaga, Telekom, and the like. These companies are either virtual monopolies, or dominate their respective industries, possibly crowding out competition and investment.

This idea is partially true – these companies are indeed big, and take a bigger chunk of the corporate sector. The trouble I have with this perception is that government linked and government controlled are not quite the same thing. More importantly, just because the investment institutions involved are government or government related, doesn’t automatically mean government money or government influence is involved – which is a claim I heard from one radio commentator recently.

There are seven major government linked investment companies (GLICs) and a few smaller ones as well. But of this bunch, only Khazanah Nasional, 1MDB and Ekuinas could be said to be directly under the government and use/have used government finance. While this isn’t exactly small potatoes – Khazanah alone manages over RM100b – they’re decidedly dwarfed by the rest. And these other institutions, while public or semi-public, aren’t managing government money.

Numero uno on that list is KWSP (or EPF), which has nearly half a trillion Ringgit under management.  EPF manages mandatory retirement savings for private sector contributors. Number two is PNB with over a quarter trillion under management, operating unit trusts i.e. voluntary investments made by Malaysians.

Third and fourth are KWAP and LTAT, which run pension funds for the civil service and armed forces respectively, with each managing approximately RM90b. Bringing up the rear is LUTH with about RM35 billion under management, investing personal savings intended for use in the Hajj. Then there’s the smaller funds, like Pelaburan MARA Berhad for example, another unit trust operator.

The difference here is that none of the funds listed above use government money for investment. While with the exception of PNB the big ones all operate under the government, their prime directive is to maximise risk adjusted returns to their contributors – not implement industrial policy.

Obviously, governance is a potential issue here (*cough* Tabung Haji *cough*), but for the most part, the latter funds operate at arms length from the government. Not wholly independent, but not exactly subject to the whims and fancies of the political wind.

Given the circumstances, it would also be difficult to say where the line should be drawn between GLC and non-GLC. Is SP Setia a GLC? Or KLK? Or Public Bank? They all have GLICs as substantial shareholders. That’s purely in the nature of things – pension and investment funds have to be invested and earn a return. In advanced economies, it’s a matter of little moment, but here we’re held to a different standard.

For the sake of comparison, CalPERS is the largest public sector pension fund in the United States, managing over a quarter trillion US dollars in assets. The fund is also well known for being an “activist” shareholder, pushing for better corporate performance, better corporate governance, shareholder rights, and ethical corporate behaviour in the companies it invests in.

Given those characteristics, which are somewhat similar to what the GLICs are doing under the GLC Transformation Program (which incidentally, goes back nearly a decade, and thus predates the ETP/GTP), can investments made by CalPERS be called GLCs? Judged under Malaysian standards, they certainly would be.

The days of active industrial policy e.g. Proton and Hicom, are well past. The government rarely tries to “pick winners” anymore, and certainly not on anything like as grand a scale as Tun Mahathir tried to achieve. The vast majority of “GLCs” are really run as any other private company would be run. Government influence over most GLCs is overrated – witness Utusan’s blatant and mostly futile attempt at bolstering its ad revenue. Nor is government involvement in the economy as pervasive as people think it is.