Three Considerations for Design of the Digital Pound

After finally becoming Malaysia’s prime minister in November 2022, Datuk Seri Anwar Ibrahim faced a choice: Target political opponents who oppressed him for years, or usher in the new era of democratic reforms that he had long promised.

Anwar had reason to want revenge, particularly against former prime minister Tun Dr Mahathir Mohamad, now 99 years old. In a defining moment of Malaysian history in 1998, Mahathir had sacked Anwar from his posts as finance minister and deputy prime minister, and kicked him out of his party. Then Anwar was arrested, severely beaten and thrown in prison for years. He spent so long in solitary confinement that he read the complete works of Shakespeare four times.

At the same time, Anwar, now 77, had reinvented himself as a global champion of democracy, winning support from the likes of former US vice president Al Gore and UK billionaire Richard Branson. Anwar had become an advocate of free and fair elections, and campaigned to eliminate graft and crony capitalism. As part of that, he’d called for independent agencies like the Malaysian Anti-Corruption Commission, or MACC, to be free of political interference.

Roughly two years into his term, it’s increasingly looking like he’s opted for revenge — and, according to Anwar’s critics, the MACC is at the centre of this retribution.

The MACC, led by chief commissioner Tan Sri Azam Baki, has opened investigations into at least three of Anwar’s adversaries and their families, including Mahathir, while not yet acting on a complaint by a politician about share purchases by one of the prime minister’s allies. The anti-graft agency opened 820 investigations in 2022, according to its most recent annual report.

Four people familiar with the situation, who asked not to be identified discussing confidential matters, said that both MACC officials and political allies of the prime minister are under the impression that the two men have reached an understanding: Azam would have his term extended as MACC chief commissioner in return for taking action against Anwar’s opponents.

While it had been customary for new prime ministers to replace the MACC chief since Malaysia passed a law setting up the body in its current form in 2009, Azam — first appointed more than four years ago — has now been in the position for three leaders, including Anwar.

Azam told MACC officials that Anwar himself instructed the agency to investigate Mahathir and his sons, as well as Tun Daim Zainuddin, a former finance minister and long-time Mahathir confidante, according to three people familiar with the matter.

The people added that Azam also told agency officials in March not to investigate share purchases by Anwar’s former political secretary, Datuk Farhash Wafa Salvador, saying the instruction came from the prime minister himself.

In response to written questions, Anwar’s office said: “The Prime Minister’s Office affirms that the prime minister has never issued directives or interfered in investigations conducted by the MACC. The MACC operates as an independent body, acting on the basis of complaints received.”

In March 2023, Anwar explained why he kept Azam in the role, saying he wanted “to avoid the perception that a new prime minister will choose a new MACC chief”. Weeks later, after Azam got his first one-year extension under Anwar, the prime minister said he gave the attorney general and the MACC “complete freedom and authority to carry out their duties”.

In a statement responding to questions about Anwar, the MACC’s Chief Commissioner Office said that it’s normal for the head of the agency to brief the prime minister on “high-profile cases and those with cross-border implications to the country”.

It added that the MACC “operates independently and has the authority to investigate allegations of corruption without seeking permission from anyone, not even from the prime minister”.

“This autonomy allows the MACC to act swiftly upon receiving reports or complaints, ensuring a fair and transparent investigative process for all cases, regardless of their prominence,” Azam’s office said in the statement. The MACC firmly refutes claims “regarding any instructions from the prime minister to influence or obstruct specific investigations”, it said.

Foreign investors who shunned Malaysia over the past six years — a period that saw a revolving door of five prime ministers and the fallout from a US$23 billion (RM95.23 billion) corruption scandal over state fund 1MDB — have recently started pouring in money, encouraged by policies to boost investment in the chip industry and artificial intelligence data centres. The ringgit is the biggest gainer across emerging markets while Malaysia’s benchmark equity index is the top performer in Southeast Asia with an advance of about 15% so far this year.

Still, Anwar’s own political standing is tenuous. While his government commands a two-thirds majority in Parliament and an election isn’t due until early 2028, coalition partners have a history of jumping ship at opportune moments. And he faces a growing electoral threat from Malaysia’s Islamic party, which holds the most seats in Parliament, and has seen its fortunes rise among the Malay majority.

There’s a growing perception that corruption and cronyism have persisted under Anwar, despite his promises for greater transparency and accountability, according to Ooi Kok Hin, executive director of the Coalition for Clean and Fair Elections, or Bersih, which has led pro-democracy street protests over the past few decades, including back when Anwar was in jail.

“If this is left unaddressed, this could erode investors’ confidence and entrench the perception that patronage is ‘business as usual’ under the new government,” Ooi said. “The government’s reformist credibility is on the line.”

Weeks after Anwar became prime minister, the MACC announced its first probe involving one of his political opponents, former leader Tan Sri Muhyiddin Yassin. Three months later, Muhyiddin was charged with four counts of abuse of power and three counts of money laundering. He has denied wrongdoing and said it was a political vendetta.

While a lower court initially acquitted him of the abuse of power charges last year, the Appeals Court later reinstated them. Legal proceedings are ongoing.

As that criminal case dominated the headlines, the MACC probes against Mahathir, Daim and their families were getting under way. Employees of the anti-graft agency were advised to describe the investigations as being part of ongoing probes into revelations from two giant document leaks, the Pandora and Panama Papers, according to people familiar with the matter.

Some details emerged in public from February 2023, when local media reported that the MACC was investigating Daim, whose shell companies were identified in the Pandora Papers. That December, the agency seized a 58-story Kuala Lumpur skyscraper owned by Daim’s family, and said in a statement at the time that it opened an investigation paper on Daim in February 2023 based on information from the Pandora Papers. As part of that, it ordered him to declare his assets.

"Based on the legal principle of 'presumption of innocence', anyone being investigated for any offences is innocent until proven guilty, and he has every opportunity to clear his name if the case is brought to the court of law," the MACC said in the December 2023 statement.

In January this year, Daim and his wife, Toh Puan Na’imah Abdul Khalid, were charged with failing to declare assets. They pleaded not guilty. The cases against Daim and Na’imah are ongoing.

Meanwhile, the MACC hasn’t announced any action on allegations of wrongdoing by Farhash, who ran the prime minister’s own campaign for a seat in the 2022 election. Within six weeks of Anwar taking power, the 42-year-old former aide was appointed to positions at listed firms.

Farhash’s dealings became a national political scandal in March, when he disclosed a roughly 16% stake in a software company called HeiTech Padu Bhd— a requirement for holders of 5% or more of a listed company’s shares. The Edge Malaysia, a local business newspaper, said in March that the firm had been shortlisted for a lucrative immigration systems contract. Shares in HeiTech Padu surged as much as 14% the day after Farhash revealed the position.

HeiTech won a different government contract the next month, prompting questions about the tender process from opposition politicians. Anwar’s government denied wrongdoing, saying the decision had been made before Farhash disclosed the stake.

In May, Anwar extended anti-graft chief Azam’s one-year term for a second time. Anwar made several considerations before doing so, Communications Minister Fahmi Fadzil said at the time, without detailing them.

To critics, the extension of Azam’s term was the latest example of Anwar’s actions as prime minister differing from his promises before he took the job.

In 2019, Anwar vowed to repeal a colonial-era sedition law that gives the state sweeping powers to prosecute dissenting voices. Yet he stopped short of that when he became prime minister, saying in July 2023 that his government would avoid using the act except in cases against royalty.

In the run-up to the 2022 election, the Anwar-led coalition’s campaign manifesto called for the MACC to be accountable to Parliament, but he now says the proposal needs more scrutiny because some lawmakers may be the targets of investigations.

Malaysia fell 34 places to 107th in a 2024 press freedom ranking by Reporters Without Borders. Anwar was unapologetic at an event in May, telling local reporters democracies need a free media but it was right to take tough action against comments that inflame religious, racial or royal tensions.

Anwar critics were also upset about a year ago when the attorney general, who serves as both prosecutor and the government’s legal adviser, dropped 47 charges against Deputy Prime Minister Datuk Seri Dr Ahmad Zahid Hamidi, a key coalition ally.

Bridget Welsh, a prominent researcher of Malaysian politics with the University of Nottingham Asia Research Institute Malaysia, said the investigations into Mahathir’s camp appear selective and “the burden is on Anwar to show that it isn’t revenge”.

“He has a growing credibility problem,” she said of Anwar. “The disappointment is even greater because the expectations were higher.”

Source: Theedgemarkets

Job surge beats all expectations

Monthly change in non-farm payrolls (000s)

Data inconsistencies linger, but we don't see the Fed cutting rates by more than 25bp in November

Unemployment rate versus Conference Board measure of jobs plentiful less jobs hard to get

Full-time versus part-time employment doesn't look great

YoY% change in employment – full-time versus part-time

Be wary of the consumer's reaction

Source: ING

Japanese companies with directors that sit on multiple boards are facing the equity market’s displeasure as the Tokyo Stock Exchange steps up pressure to improve corporate governance. 

The bourse tightened listing guidelines in 2022, demanding that firms in its blue-chip Prime section get at least a third of their board members externally. While most companies have tried to meet this request, they are speeding up the process by taking on members already serving on other boards.

That has led some companies to hire directors who were too overstretched to focus on maximising shareholder value. Since April 2019, these firms have underperformed the broader stock market by 8.6 per cent, while the rest beat it by 3.5 per cent, said Ms Akemi Hatano, the chief quants strategist at SBI Securities.

“Outside directors are supposed to bring in different ideas without providing lip service to management,” said Ms Hatano, who estimates that 30 per cent of the Prime section’s 1,640 firms have directors on more than one board. “If companies are relying on ‘moonlighting’ directors, that could be a sign of weak governance.” 

Japan’s corporate governance reforms have been a key factor in the stock market’s climb to a record earlier this year. The push to get more outside directors was aimed at broadening the perspective of boardrooms, addressing the concerns of minority shareholders and improving management’s objectivity.

But investors are far from satisfied, saying that some companies still refuse to let their outside directors have a direct dialogue with shareholders.

“In the last couple of years, we suddenly had many meetings with outside directors,” said Nissay Asset Management chief equity fund manager Taku Ito. “Some are ready to meet us, but a lot who have positions in multiple companies, and frankly those who became a director just because of their past connections, simply don’t want to meet.” 

SBI’s Ms Hatano said that part of the reason why some companies are “doubling up” on directors is because there is a limited supply of suitable candidates. Other analysts are less bothered by the practice, saying that serving on two boards simultaneously is fine as long as the lines of communication between directors and shareholders are clear. 

The TSE said in August that it will likely publish an updated report in November on how companies can align their thinking with investors.

With more than 95 per cent of companies on the Prime section complying with the exchange’s guideline, there is a broad consensus that focus is shifting to quality from quantity when it comes to outside directors and corporate governance. 

“Governance reform is still halfway,” said Rheos Capital Works trader Yuya Fukue. “It will take time before it reaches every corner of the market. But there is no denying that the guidelines are prompting change.” 

Source: Straitstimes

Source: EuroNews

Financial engineering just isn’t working as well as it once did for private equity shops. Some of the biggest, including Goldman Sachs Group Inc. and Blackstone Inc., have added veterans with operations experience from industry giants like Walmart Inc. and Honeywell International Inc. Others like Brookfield Asset Management Ltd. and Partners Group are leaning even more into their roots as operators.

They’re looking for tangible results such as wider margins and higher cash flow instead of gauzy “multiple expansion.” It’s a more hands-on approach that includes building five- and 10-year strategic growth plans for the companies they own, and sometimes helping them market and sell their products. Goldman, without being specific, said its efforts have yielded hundreds of millions of dollars in extra revenue.

“Helping companies operate well should always be an important initiative,” said Lou D’Ambrosio, the former CEO of Sears Holdings who leads Goldman’s unit devoted to boosting growth at the firm’s private holdings. “But if several years ago it was a ‘nice to have,’ now it’s a ‘need to have.’”

They need it because private equity firms are contending with a drought in the deals market and holding periods as much as three years longer than historical averages. Acquisitions that seemed like a good idea when interest rates were at rock bottom are stuck shoveling cash into debt payments, and meanwhile, private equity clients are clamoring to receive long-delayed payouts.

Frothy Phenomenon

“That’s created a lot of challenges for that cohort of investments made in 2021, and you can’t assume multiples expansion,” said Andrea Auerbach, head of global private investments at Cambridge Associates, whose team allocates nearly $15 billion to private market managers every year on behalf of pension funds, endowments and other investors.

Multiples expansion, in private equity parlance, is when a firm’s value rises far more than the underlying fundamentals. Investors can’t count on that to continue — a McKinsey & Co. study found multiples were shrinking as of last year. So they’re asking private equity managers if they can consistently improve profitability with better operations, or as Auerbach put it, “Have you added people that know what to do?”

It’s not like private equity is discovering the idea for the first time — they’ve being tinkering with operations for years — but the data that’s available shows there’s good reason to try.

CAIS Group, which consults on alternative investments, sorted through figures on deals from the Institute for Private Capital and found that boosting revenue growth and margins added almost twice as much value than multiple expansion during the decade following the 2008 financial crisis. Preqin’s examination of deals under $1 billion from 2006 through 2019 also found that gains from improving revenue and margins beat out multiple expansion.

It’s too early to gauge the full impact of the latest hires because their plans can take years to create and execute. But demand for operational help more than doubled in the first half of the year from a year earlier, according to TBM Consulting, which advises manufacturers and distributors.

In practice, this doesn’t mean hiring someone who already knows a lot about the widget a company makes, or sleeps on the factory floor like Elon Musk or cost-cuts their way to prosperity with mass firings. Instead, the recruits are expected to look deep into a company’s technology, digital data, human capital and finances, said Chris Smith, a partner at recruiting firm Leathwaite International.

Different Mindset

It’s a playbook that Partners Group and Toronto-based Brookfield started out with, and others are now seeing the merits.

“The prior era was a bit more transactional and about finding investment opportunities,” said Partners Group’s David Layton, chief executive of the Swiss private equity firm. “Our industry is changing. You don’t have the same tailwinds.”

Sensing the turn, Partners Group brought on Wolf-Henning Scheider a year ago as its private equity head. He’s an unusual choice — “our head of private equity has never done a private equity transaction,” Layton said. But Scheider has “the mindset of an operator, not the mindset of a deal-doer.”

He fits in partly because the $150 billion firm sees itself more like an industrial conglomerate than a finance firm with portfolio holdings. Scheider spent 36 years working at Robert Bosch GmbH and Mahle GmbH, two enormous German engineering multinationals best known for automotive parts.

Within months, Scheider had the firm expand its existing homemade system that tracks progress in the strategic growth plan of each portfolio company. He leans on the information gleaned to track milestones and performance, and keep projects on track when meeting with management teams and boards of the portfolio companies.

Cash Flows

Kate Romanowicz, a senior client partner at headhunting firm Korn Ferry, just finished a search for an executive with commercial experience to help portfolio companies at a big private equity firm boost sales. In the over-stimulated post-pandemic economy, where consumers snapped up goods with abandon, companies “never had to sell a thing,” Romanowicz said. “Now you really need to hustle. You need to create a sales force, so firms are trying to rebuild that capability, because that muscle was kind of lost.”

Other firms are hamstrung by higher interest rates that have drastically changed the economics of transacting, holding and exiting portfolio companies. They’re bringing in experts to help boost cash flows so they can meet minimums set by lenders and head off a default, according to Gary Hoover, TBM’s vice president for global private equity.

“Many of our clients have come to us very specifically and said, we need to find Ebitda improvements immediately,” said Hoover, referring to a key measure of earnings in loan agreements.

Brookfield, the world’s second-largest alternative-asset manager, brought on Adrian Letts in 2022 to become head of business operations for the private equity group and put the former energy and supermarket executive to work on Modulaire Group. The business, acquired in 2021, specializes in building energy-efficient and sustainable modular infrastructure, from temporary offices at construction sites to children’s day-care centers.

Letts said he’s creating value by “standardizing technology and procurement processes” across the Modulaire’s brands so that it has growth “whatever the weather.”

Basic Approach

Without the tailwind of low rates and tame inflation, private equity firms will have to concentrate on basics like margin expansion that make companies better, Anuj Ranjan, Brookfield’s head of private equity, said at the firm’s investor day.

Goldman Sachs, which oversees some $140 billion in private equity assets with more than 300 portfolio companies, recently hired Darius Adamczyk, Honeywell’s former leader, to parachute into firms to fix industrial operation issues and decide what to invest in next.

They’re working with a benefits management firm on deploying artificial intelligence to speed up decisions on whether health claims are covered, D’Ambrosio said. The effort combines a large language model with elements such as treatment codes, coverage terms and identifying the person who’s contacting the call center.

Similarly, Walmart’s artificial intelligence whiz Prakhar Mehrotra joined Blackstone in April to bring the emerging technology to its portfolio of more than 240 companies. Mehrotra said via email that AI has been put to work with significant impact in education, logistics, consumer products and recommendation systems.

As for future deals, operating partners are gaining influence, with some firms bringing an industry executive into pre-deal discussions to explain just how hard it will be to extract value from the investment.

“The ability to financially re-engineer a company is no longer a competitive edge,” said Smith, the Leathwaite recruiter. “They’ve had to revamp their expectations, their timeline to exit, and the way they are going to exit. That also means they just have to work hard to make money.”

Source: The edge markets