Inside Papua New Guinea’s largest private equity fund

Kennedy Wemin, the Chief Executive of Melanesian Trustee Services Limited (MTSL)—the  trustee and interim manager of Papua New Guinea’s Pacific Balanced Fund—tells Business Advantage PNG that the difficult economic conditions create opportunities as well as challenges. He outlines some of the fund’s future options.

MTSL’s Kennedy Wemin. Source: Business Advantage International

BA: Does the Pacific Balanced Fund (PBF) typically take a board position in a company, or is it usually a ‘silent’ investor?

Wemin: Our portfolio ranges from small holdings, all the way through to 100 per cent ownership. We take board positions in all investee companies where equity ownership exceeds 20 per cent.

While we have seats on such boards, we have an active approach to nominate directors who can contribute and attribute value to the investee. We have also used these board position vacancies to give professional development opportunities to young, up-and-coming individuals in PNG.

In most of the investee companies in the portfolio, we are the only local partner. We have board seats but don’t manage the businesses. The fund relies on the dividends from these investments—that’s 99 per cent of our income.

All this value build has been possible through a mix of strategies and one of them is the placement of nominee directors whose individual strengths match the business direction of the investee company. Paper valuations are one thing, but unit holders actually want real rewards. At the end of the day, it’s about extracting real value.

BA: Are you looking at, or have you recently entered into, new investments?

Wemin: Yes. A key part of our management approach is to constantly review the composition of our portfolio and to keep it balanced against the changing global and domestic economic conditions.

While our past performance has been good, we have recently been hit hard by the foreign exchange shortages. Our portfolio is mainly import-based multinationals. The foreign exchange shortage has impacted our portfolio performance in a big way and has affected the dividend flows we have been enjoying in recent years.

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As a result, we have identified a few, very interesting, prospects and growth areas which are biased towards increasing our exposure to export-based businesses.

In the words of Warren Buffett, ‘it’s only when the tide goes out that you learn who has been swimming naked.’

You need sound investment strategies to survive the difficult times; without them, you will be exposed. Having said that, tough times also provide some exciting opportunities if you know what to look for. Creating your own niche opportunity and running with it is another exciting prospect.

In recognition of that, we have registered a property business, an agricultural business, and a power/IT/technology business. Those are at the initial start-up stage. The property business has taken off.

‘Very soon I will be seeking our Board’s approval to issue a prospectus and go out to market to raise fresh capital.’

From an initial capitalisation of K2 million, it has risen to well over K56 million in a few short years and we anticipate more growth on the back of our housing development in Bomana.

We have also undertaken a significant land investment—suitable for agriculture—which is a 40-minute drive from Port Moresby. This investment will not only add significant value to the bottom line for the Fund but, importantly, it has the potential to feed not only Port Moresby, but the rest of Papua New Guinea and South-East Asia.

BA: Do you need to expand your membership, or are you happy with the number of unit holders in your fund?

Wemin:  It would be great to continue the growth story of the fund and, to do that, we need new capital. It would be even more exciting if we are able to do that with greater participation, to grow the number of members.

A personal belief of mine is that financial institutions are the way of the future. PNG’s mineral deposits will run out at some point, but if you build your economy on the back of financial institutions, with sound monetary policies, you will experience growth spurts unlike anything we have seen in our short history.

Look at other successful economies around the world and ask the question: ‘How did they get to where they are?’ In almost all cases, you will find that it has been on the back of their financial institutions.

Very soon I will be seeking our Board’s approval to issue a prospectus and go out to market to raise fresh capital to build the portfolio towards more export-based companies and, more importantly, to back local businesspeople who have invested their own capital and are looking to go to the next level.

About the Pacific Balanced Fund

  • Established: 2002
  • Trustee: Melanesian Trustee Services Limited
  • Net assets: K616 million (2015)
  • Local investments include: Trukai Industries (34%), Toyota Tsusho PNG Ltd (24%), Kumul Hotels (27%), Nationwide Microbank (13.6%), Origin Energy Ltd (33%)

Kennedy Wemin will be speaking at the Business Advantage Papua New Guinea Investment Conference in Sydney on September 7 and 8.

Comments

  1. Gareth Kobua says:

    I noticed from the list of Pacific Balance Fund’s local investments, there are no investments in Fixed Cash assets such as Government Inscribed Stocks (GIS) and Treasury Bills (TBills). I understand that rates in the local bond market is quite attractive at the moment. So my questions are:
    (1). Why is there no investments in Fixed Cash assets?
    (2). Is it not the Fund’s Strategy to invest in Fixed Cash assets?

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