Opinion: Why RM120b isn’t reaching Malaysia’s engine room

PENANG, 25 SEPTEMBER 2026 —

A massive RM120 billion war chest was promised under the Ministry of Finance’s Government-Linked Enterprises Activation and Reform Programme (GEAR-uP) to transform Malaysian businesses.

It may have customers, assets and decades of operating history, but the cheque may be too small for a large fund, too risky for a conventional bank loan, or too labour intensive for advisory firms whose fees depend on successful completion. Malaysia does not have a shortage of capital. It has a problem getting the right capital to the right companies. Malaysia’s mid-tier companies (MTCs) represent roughly only 0.8% of registered companies.

Yet they contribute an estimated 36% of gross domestic product (GDP) and employ 16% of the national workforce. Recognising the need to invest more at home, six government-linked investment companies (GLICs) have pledged RM120 billion in domestic direct investments between 2024 and 2028 under GEAR-uP. The RM120 billion is a broad commitment and is not specifically earmarked for MTCs.

But within the wider push, dedicated programmes such as Khazanah Nasional’s Dana Impak and KWAP’s Dana Pemacu are helping channel capital towards growing Malaysian businesses, including the mid-market. Making capital available, however, does not necessarily mean viable MTCs can access it. The financial plumbing in between remains weak. Three bottlenecks explain why. Large funds face an inescapable cheque size problem.

Directly assessing a RM20 million growth equity investment into an unlisted manufacturing firm in Penang requires much of the same due diligence, legal structuring and monitoring as a RM200 million commitment into an infrastructure asset or public equity investment. The economics therefore push large investors towards bigger transactions. To bypass this bottleneck, GEAR-uP delegates capital to external fund managers. But delegation does not remove the problem completely.

Even RM1 billion disappears quickly when individual investments run into tens of millions of ringgit. Managers, too, need investments large enough to justify the work and generate attractive returns. Compounding this issue further is sector bias. Large-scale institutional mandates are frequently engineered around high-growth themes such as energy transition, advanced manufacturing, semiconductors, healthcare and digital infrastructure. A software company or semiconductor designer fits neatly into mandates.

A profitable manufacturer that wants RM 20 million for brownfield automation may not. That creates a mismatch. The “missing middle” is formally defined by regulators mainly by company size, while much of the institutional capital intended to address it is organised around sector themes. The UK offers one possible response. Evergreen investment vehicles that can hold minority stakes for longer periods rather than forcing every investment into the conventional fund cycle. The premise is simple.

If conventional fund economics make smaller companies difficult to finance, the solution is to change the structure through which the capital reaches them. The issue extends beyond the structural limits of institutional funding. It is also a mismatch between the type of capital available and what MTCs can absorb. Bank debt requires predictable cash flow, collateral and debt service coverage.

Yet companies investing heavily in expansion, technology or restructuring may experience temporary margin pressure precisely when they need financing most. Private equity solves the timing problem but can create another one. Owners may be reluctant to give up equity, board influence or control simply to raise capital. Private credit is one attempt to bridge this gap. It offers capital without requiring owners to give up equity and can be more flexible than conventional bank lending.

Under the GEAR-uP initiative, Khazanah Nasional’s Dana Impak has tapped Navis Capital Partners and Granite Asia as private credit partners. A private credit investor could finance a Penang-based metal fabricator while its margins compress as it retools during transformation, provided there is sufficient visibility on ultimate repayment and downside protection. But a lender still needs confidence that it will be repaid.

The more a company is asking an investor to bear the risk that a major factory upgrade, restructuring or technology investment may not work, the less suitable a conventional senior loan becomes. A longer maturity does not make that execution risk disappear. This exposes a deeper gap. Who bears transition risk without demanding either bank-like downside protection or traditional private-equity-like ownership control?

The answer may lie further along the risk spectrum, through junior, hybrid or patient capital that can absorb greater volatility without requiring outright ownership. France has tackled a similar problem through transformation loans designed to absorb modernisation risk. While Malaysia will require its own adaptation, the underlying principle still holds. We need risk capital that supports transition without demanding outright ownership. The capital exists. What is often missing is the right kind.

Malaysia has no shortage of companies seeking capital or advisers capable of raising it. What remains thin is the network connecting the two. In deeper private markets, advisers know which investors write which cheques. Investors know which advisers bring credible companies. Founders have more routes into that network. Malaysia may not have a shortage of advisers.

It does, however, have a shortage of transaction volume large and frequent enough to support a specialised mergers and acquisitions (M&A) advisory industry. At RM15 million to RM50 million, the economics are difficult. The fee is small, but the work is not. An adviser still has to prepare the company, value it, find investors, manage due diligence and negotiate a transaction that may never close. Capable advisers therefore opt out.

With fewer advisers, fewer companies are brought to market. Fewer companies mean fewer transactions, further weakening the economics of specialised advisers. The capital exists. The companies exist. What is thin is the plumbing between them. Germany’s national succession infrastructure points to another possibility. Creating organised routes connecting owners, buyers and advisers can make viable businesses easier to discover, particularly as the generation that built many of its industrial businesses approaches retirement.

There is, of course, a simpler explanation for the funding gap. Some companies may simply be structurally uninvestable at scale.

Related: Khazanah Nasional · Ministry of Finance · Penang