KUCHING: What is a sovereign wealth fund? It’s a state-owned investment fund run on behalf of the people, comprising money generated by the government, often derived from a country’s surplus reserves.
Prof Geoffrey Williams from Malaysia University of Science and Technology explained that the fund usually obtained the seed money from commodity sales such as oil which is used to invest actively across a balanced portfolio of assets often overseas, but also domestically.
He said the income could be used for economic and social investments or even as a pension fund.
“There are just under 50 sovereign wealth funds worldwide of various sizes with the biggest in Norway, China and the Gulf States. In Malaysia, Khazanah Nasional is our sovereign wealth fund while Singapore has its Tamasek Holdings,” he told New Sarawak Tribune.
“Therefore, the idea to set up a Sarawak sovereign wealth fund is a very important initiative for the long-term development of the state,” he said.
Williams said Sarawak had a long history of oil revenues for more than a century but had not benefited as much as it could have had. They could also use income from other sources such as revenue from renewable energy through Sarawak Energy Berhad.
He said as oil resources would run out over the next few decades, Sarawak must retain as much revenue as possible for investments and income for the future.
“So a sovereign wealth fund is an excellent vehicle for this and the Norway sovereign wealth fund or the Government Pension Fund Global of Norway, would be one of the best models to follow,” he added.
Sarawak Premier Datuk Patinggi Tan Sri Abang Johari Tun Openg in his recent Gawai Dayak message said a bill to create a sovereign wealth fund ordinance in Sarawak would be tabled in the State Legislative Assembly this November.
He said the fund, modelled after the Government Pension Fund Global of Norway, would begin operation in 2024.
Abang Johari said Sarawak now had the largest financial reserves compared to other states and that it should be reinvested to provide long-term benefits for the people.
“The increase in the state’s savings should be reinvested partially to provide returns that will benefit future generations through a fund known as the sovereign wealth fund,” he said.
Williams, who is also an economist, said Sarawak had a very bright future with many resources that could be used to make the state an economic power in the Southeast Asian region, as well as many investors wanting to come to the state because of its advantages, including political stability and unity among the people.
He opined that the Sarawak sovereign wealth fund would provide a long-term resource for investments and the income from the fund could be used in social, environmental and economic development of the state.
“It can be used to provide pensions, investment to create jobs and incentives to protect environmental resources.”
However, he said, there must be watertight governance to protect the fund as well as international standards for the fund under the Santiago Principles which dealt with governance issues, to prevent corruption.
Apart from that, he said, the strategic asset allocation and investment strategy must aim to maximise investment returns, and not be used for cronies’ pet projects.
“This may be investment in Sarawak but may also be investment overseas where returns are higher. A diversified, balanced and well managed fund is essential for the success of the project,” he added.
Williams said the Sarawak sovereign wealth fund could play a positive role here by encouraging investment in good environmental, social and corporate governance (ESG) companies.
“Sarawak Energy for example has a very good ESG history.
“The Norway sovereign wealth fund has been a world leader in this for many years and the Sarawak sovereign wealth fund could also be a world leading fund,” he added.
