KUALA LUMPUR – The RM43.9 million in losses incurred by Khazanah Nasional Bhd and Permodalan Nasional Bhd (PNB) from investing in Fashion Valet Sdn Bhd (FashionValet) underscores the need for clearer and stricter criteria involving state-backed dealings, an economist said.
Global Asia Consulting’s senior consultant Samirul Ariff Othman said sovereign wealth fund Khazanah and fund management company PNB, unlike private venture capital funds, juggle a dual mandate to generate profit and stimulate socio-economic impacts, while also serving strategic national interests.
As such, he questioned whether sufficient checks were carried out on FashionValet prior to the government-linked entities investing RM47 million in the e-commerce platform which had a mission to promote local designers and Bumiputera talent.
“(Khazanah and PNB’s) investment decisions traditionally hinge on factors like long-term growth prospects, scalability and alignment with national development goals.
“In FashionValet’s case, the allure of promoting a local brand probably weighed heavily, yet the question arises – was there enough scrutiny of FashionValet’s business fundamentals, competitive positioning and financial resilience?” Samirul told Scoop.
Beyond support for Bumiputera companies – which is one of PNB’s main agendas – the focus for such investments should have included considerations such as sectoral impact and resilience, added Samirul, who is also an adjunct lecturer at Universiti Teknologi Petronas.
While investments in fashion are culturally significant, the industry is also susceptible to the volatility of consumer trends, even more so in a small domestic market, he noted.
“In contrast, Malaysia faces pressing economic imperatives – advancing its agricultural productivity, innovating in green energy, bolstering food security and fortifying its defense capabilities.
“Redirecting funds towards such sectors could promise not only financial returns, but also durable and strategic value for the nation,” he added.
Samirul acknowledged that FashionValet’s ability to attract Khazanah and PNB’s capital could have implied there were compelling factors in its favour, such as a strong narrative of supporting Bumiputera-led innovation. High visibility surrounding the fashion tech space at that time could also have played into the decision to invest.
“However, in hindsight, Khazanah and PNB may have benefited from applying a wider lens, one that evaluates investments not merely through the lens of identity and market excitement but also through their potential to fuel long-term, strategic growth in core industries crucial to Malaysia’s future.”
Echoing Samirul’s views on investing in strategic sectors, PKR’s Pasir Gudang MP Hassan Abdul Karim said that instead of being a “portfolio manager”, Khazanah should invest in strategic industries such as water, defence and food security.
The functions and terms of reference for Khazanah’s investments should also be relooked, the backbencher added.
Joining the chorus of demands for a thorough explanation by Khazanah and PNB, former DAP lawmaker Ong Kian Ming said both entities should justify their rationale behind investing in FashionValet, as well as the measures taken to monitor the investment.
“With greater transparency in (Khazanah and PNB’s) investment strategies, this can hopefully ensure better investment decisions moving forward.”
The former international trade and industry deputy minister also suggested Khazanah and PNB explain the decision-making process and detail the returns on investments in asset classes similar to FashionValet, cautioning that this case alone should not be used to judge the two government-linked investment companies (GLICs).
“We shouldn’t just focus on one ‘bad’ investment as a reflection of the respective GLIC’s investment record. (Rather), we should look at the overall investment record of each GLIC and evaluate their governance structures,” he told Scoop.
Ong also suggested the establishment of a robust process within GLICs to determine a benchmark for investments and associated risks.
However, he argued that it would “not make sense” for such GLICs to disclose the profits and loss associated with each undertaken investment – unless the investment stake is “very large” and “something really bad” affects the investment.
In the latter instance, he referenced the case of Singapore’s state-owned investment firm Temasek Holdings Ltd’s failed investment in cryptocurrency company FTX, which led to Temasek’s investment team and senior management taking a compensation cut.
Yesterday, Prime Minister Datuk Seri Anwar Ibrahim instructed Khazanah to conduct an internal audit to probe losses it incurred after selling off its minority stake in FashionValet.
Khazanah, in 2018, had invested RM27 million into the country’s first local fashion e-commerce website while PNB had contributed RM20 million.
It was revealed in a parliamentary written reply last week that Khazanah and PNB had sold their combined RM47 million stake in Fashion Valet for a mere RM3.1 million.
Following public backlash, Khazanah released a statement attributing the exit to challenges during the Covid-19 pandemic, which led FashionValet to shift from an e-commerce platform for Asean products to focusing on its in-house brands dUCk and Lilit.
PNB, meanwhile, has clarified that its investment in FashionValet was made using its proprietary fund and not the unit trust funds under Amanah Saham Nasional Bhd (ASNB) subscribed by the public.
PNB also said its investment in FashionValet represented its agenda to support “high-potential” Bumiputera companies.
FashionValet founders Datin Vivy Sofinas Yusof and her husband Datuk Fadzaruddin Shah Anuar have since announced their decision to step down from the company as part of a leadership change amid ongoing efforts to stabilise the business. – November 3, 2024
