* State investor's portfolio grows 11 pct to $41 billion
* Political change in key emerging markets makes for cautious 2014
* Considering further insurance investment but "in no hurry" (Adds comments from the fund, past acquisitions, divestments)
By Al-Zaquan Amer Hamzah
KUALA LUMPUR, Jan 20 (Reuters) - Malaysian state investor Khazanah Nasional Bhd said political change in key emerging markets means it will have to approach investment more cautiously than last year, when its portfolio of assets reached a record $41 billion.
The sovereign wealth fund, which owns stakes in mobile services provider Axiata Group Bhd and property firm UEM Sunrise Bhd, has been increasing activity abroad to reduce the risk of being heavily invested at home.
But elections or leadership change in Turkey, India and Indonesia, as well as their uncertain economic outlook and weakening currencies, make for a cautious outlook for 2014, the fund said at its annual review on Monday.
Last year, the value of Khazanah's portfolio rose 11 percent from a year earlier to 134.9 billion ringgit ($40.92 billion) as at December-end, the fund said, attributing the growth to improved operational performance at the companies it owns.
Last year "did not have the big deals that grabbed the headlines but it was an important year," Managing Director Azman Mokhtar said at the review. Investee companies have been expanding throughout the region and the world, he said.
Khazanah last year partnered Canada's Sun Life Financial Inc to buy the Malaysian joint venture of British insurer Aviva Plc and local lender CIMB Group Holdings Bhd , to add to its growing portfolio of insurance assets.
The fund is considering further investment in insurance, particularly in emerging economies where the sector is likely to benefit from rising incomes, said Azman, adding the fund cannot concentrate too much on a particular sector or country.
"We have to match it to our geographical footprint. We are in no hurry; we can wait."
Khazanah, whose investments are around 90 percent domestic, made a visible push to expand abroad last year.
It spent $252 million to buy 90 percent of Turkish insurer Acibadem Saglik ve Hayat Sigorta, and bought a minority stake in Beijing Enterprises Water Group Ltd for $152.1 million.
Most notably, it bid for a $1.8 billion stake in Thailand's Bank of Ayudhya Pcl but lost out to Japan's Mitsubishi UFJ Financial Group.
Khazanah sold off five assets it considered not central to its operations over the past two years, the last of which was its interest in TIME Engineering Bhd for around $21.30 million in September.
The fund divested 51.4 billion ringgit worth of assets in 2004 to 2012, including car maker Proton Holdings Bhd, now a unit of DRB-Hicom Bhd, and postal services provider Pos Malaysia Bhd. ($1 = 3.2970 Malaysian ringgits) (Editing by Christopher Cushing and Stuart Grudgings)