Duit Kita Berbilyon-Bilyon Depa Bagi Sama Depa.

First here is some news from The Star :

Ekuinas steps up outsourcing programme

PETALING JAYA: Ekuiti Nasional Bhd (Ekuinas), the government-owned private equity fund, has selected :

• CMS Opus Private Equity Sdn Bhd
• KAF Fund Management Sdn Bhd (KFM) 
• RM Capital Partners Sdn Bhd 

as its latest outsource partners, according to industry sources.   This is Ekuinas’ second tranche of selecting outsourced fund managers (OFMs), having already picked 

• CIMB Private Equity Sdn Bhd
• KFH Asset Management Sdn Bhd 
• Navis Capital Partners 

as outsource partners in the first tranche announced in July 2010.

• government-owned Ekuinas and Mavcap play a role of boosting local private equity and venture capital players by giving them funds to manage
• these new OFMs would receive around RM60mil each from Ekuinas 
• It is unclear how many private equity firms participated in the selection process in this second tranche.  (And it shall remain a mystery).
• “announcement in September outcome of selection process” Ekuinas said.
• Ekuinas launched the outsource programme in December 2009.
• allocated RM400mil in the first tranche 
• 
  
• Ekuinas planned to appoint seven to 10 OFMs to manage RM10bil fund in a three-year period.
• 
  
• the OFMs are selected based on their ability to raise external capital, terms of the fund, organisation structure, business strategy and the teams’ private equity experience.
• CMS Opus Private Equity, headed by Azam Azman, is under Cahya Mata Sarawak Bhd. .. invests primarily in growth assets in oil and gas services.
• KAF Fund Management was founded by Khatijah Ahmad.
• RM Capital Partners is founded by Rohana Mahmood, who is also Ethos Capital chairman and partner.  ..  .RM Capital Partners had also invested in Masterskill, a provider in nursing and allied health education.

Well I look at this as more of the "Nenek Tua Business Model" going on here. 

The thing that frightens me most is this part :  RM10bil fund in a three-year period..

Folks the RM10.0 billion is really too much. Way, way too much.  If seven OFMs share RM10.0 billion, that works out to RM1.42 Billion each.  Lets list out those lucky OFMs who have been given RM580 million already : 

• CMS Opus Private Equity 
• KAF Fund Management   
• RM Capital Partners  
• CIMB Private Equity 
• KFH Asset Management  
• Navis Capital Partners 

But RM10.0 Billion is 40 times the 'Lembu Condo' amount which was 'only' RM250.0 million.  

My question is simply this - what guarantees are there that we are going to get our RM580.0 million or RM10.0 Billion back?  Do read on.

In the old days, the Gomen cannot spend so much of our money without getting a Cabinet approval. The Cabinet used to discuss any expenditure - even small ones of a few millions of Ringgit. Why? Because it involves public funds.

Now with the GLC culture, they can give a GLC like Ekuinas RM10.0 Billion public funds and give them a blank cheque to go and spend it. No one knows how they are going to spend this RM10.0 Billion. Did you know about this? 

The decision to spend RM10.0 Billion is made by some young fellows who have little or no idea about business. I have met the Ekuinas boys ok.  

Dulu depa cadang nak beli 7-11.  Macam lah Vincent Tan nak jual 7-11 kepada depa pun.  Now they want to channel money to the venture capital companies. Do read on. 

Ekuinas has a serious 'business model' problem. They dont know what is their real role. You dont need a CEO, Chairman, BOD etc (all paid millions in salaries and bonuses) just to channel public funds to other fund managers.  

Its like the Gomen getting a sub-contractor to find another sub-contractor to find another sub-contractor.  

I was given the impression that Ekuinas was charged with developing viable new businesses by themselves. This means Ekuinas must go out and find feasible and worthy bumiputra ventures or bumiputra owned businesses. Then Ekuinas will give them the seed capital, mezzanine capital, venture capital etc and incubate them into becoming bigger businesses.  This is the whole idea behind venture capital financing. 

There are a couple of catches though. Venture capital kicked off in the US and elsewhere based largely on high technology industries. Wall Street banker JP Morgan provided Thomas Edison money to develop the light bulb. It was high tech at that time.   You hardly do venture capital  financing for housing developers or mini markets. 

The nature of venture capital - high risk and high return within stipulated time frames - makes more sense in high tech industries. This is where we have a problem. There is no high tech in Malaysia.

In the early 90s when venture capital started in Malaysia, the preferred investments were palm oil refineries. Itu saja.  Dont know how much further the industry has come since then.

The second point is viable bumiputra "start up" businesses. This is a very rare bird indeed.  Very, very few bro.

So venture capitalists in Malaysia became 'mezzanine capitalists'. They provided mezzanine capital to companies already on their way for a listing. After listing, they would cash out. Then look for the next 'listable' company. I think after the Capital Issues Committee was disbanded this business also died.

Now Ekuinas is 'sub-contracting' their job - ie instead of developing viable bumiputra businesses on their own, Ekuinas is lending money to other venture capital financiers who will then go out and find the viable companies to invest. 

This will make a big difference in the type of returns that will be shared.  I think the venture cap financiers (who are getting the RM10b) will make much higher equity investor returns while Ekuinas itself will make lesser financier type returns. But that is not the issue.

If the venture cap firms can develop new businesses and make good returns then I say give them the RM10.0 Billion. Give them RM20.0 Billion.

But my concern is that there is not enough viable "venture capital" type businesses in Malaysia to soak up RM10.0 billion worth of venture capital, especially among bumiputra businesses.

In the end the RM10.0 billion may end up where it usually ends up - in the stock market, T -Bills, FCAs (Foreign Currency Accounts) and other rather normal "fund manager" type instruments. Maybe even in Fixed Deposits and Unit Trust schemes.

So when Ekuinas 'bagi pinjam duit RM10 billion ini' we must ask at what rate of interest or is it 'Islamic profit sharing'? If it is profit sharing lagi senang - the money can go straight into the Money Market instruments or into Fixed Deposits.  This will become 'Nenek Tua Business Model' again.  

But I wont get as nervous because our money will be relatively safe.

But what is the purpose of giving RM10.0 Billion to venture cap financiers who will then put the money in FD, the Money Market  or into the stock market?  Your 'Nenek Tua' can do that as well. Just give it to ASB, PNB, the Unit Trusts etc.  They can do equal or better.

Or you and me can also do the same.

But I will get worried if these "lucky" venture cap companies do decide to take the RM10.0 billion and really invest the money in start up businesses - real, wild west (wild Wall Street) venture capitalist style.

Because the nature of venture capital is that there is no guarantee that the money will come back. These are not loans. If they invest in ventures that go bust, the RM10.0 billion will also become 'ghaib'. This is what we should all be afraid of. Duit RM10 billion tu boleh hilang.

Are there that many viable start up businesses in Malaysia that can safely absorb RM10.0 billion venture capital funds? 

Maybe when Ekuinas makes that announcement in September they can divulge where the first tranche of RM400 million has already been invested (by CIMB Private Equity, KFH Asset Management, Navis Capital Partners in the first tranche announced in July 2010.)

As I said if they have invested the funds in the stock market, T Bills, Sukuk, Money Market instruments, Fixed Deposits, FCAs etc then that is NOT developing venture capital at all. 

That is just giving an easy RM400 million to CIMB Private Equity, KFH Asset Management, Navis Capital Partners  to play with. It is the  'Nenek Tua Business Model'.

If the RM400 million is being invested in real start up venture cap type businesses, then we may have to kiss that money good bye.

So in the final analysis - what is the real function of Ekuinas?  RM10.0 Billion is a lot of money. 

Despite Wall Street being around now for over 200 years, RM10.0 Billion is too much venture capital money even for Wall Street to handle. Wall Street pun kalah.

Is someone planning to siphon off some of that money? I will not be surprised.