KINBIZ The directors of 1Malaysia Development Bhd (1MDB) have admitted the state-owned strategic investment fund has little to no control over some RM7.18 billion in offshore investments.

In the company’s latest audited accounts for the financial year ended March 2013, 1MDB’s directors conceded they were “unable to exercise control or significant influence” over financial investments in an unnamed Cayman Islands fund manager.

Under the Malaysian Financial Reporting Standards (MFRS), control is defined as power over the investee, exposure or rights to variable returns from involvement with the investee or the ability to use power over the investee to affect the amount of returns.

1MDB became a “participating shareholder” of the Cayman Islands fund manager, itself a specific type of structured investment company called a Segregated Portfolio Company (SPC), in September 2012 with an investment of US$2.32 billion (approximately RM7 billion at September 2012 exchange rates)

The only clue to the identity of the fund manager in 1MDB’s audited accounts is that it is a “licensed financial institution with good credit ratings.”

The audited accounts, submitted more than a year late, show 1MDB’s investments in the Cayman Islands SPC paid out a US$133 million (RM435 million) cash dividend in September 2013 or a 5.76 percent annual return on the initial investment amount.

In the past year, the strategic investment fund has been surrounded by controversy for making questionable investment choices, among them expatriating the proceeds of a government guaranteed bond sale to the Cayman Islands, a known tax haven.

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