Malaysian provident fund eyes more foreign investments
MALAYSIA’S Employees Provident Fund (EPF) is looking for more investment opportunities overseas, as the income from foreign assets is significant for the performance of the pension fund.
During a media briefing, EPF chief executive officer Shahril Ridza Ridzuan emphasised the need to look for more interesting opportunities globally to counterbalance the impact of lower returns from the Malaysian equity market.
“In 2009, we had roughly about 6 per cent in global investments, [and] three to four years later it is about 20 to 24 per cent. So we have been putting in incremental growth over the past few years and you will see more of the same [this year], as we move to that 30-per-cent target,” he said.
The fund currently has a cap of 30 per cent in terms of the proportion of assets that can be invested overseas. Shahril explained that the EPF might well increase this cap, but the matter would have to be discussed with the Ministry of Finance first.
“The cap is for the medium term. We operate our asset-allocation strategies on a three-year-cycle basis. We will review the cap for the next three-year cycle.”
Although the EPF seems to be close to the 30-per-cent threshold, Shahril said this was not an issue for the time being.
For example, the fund is also exiting profitable overseas investment assets in which the proceeds would be redirected towards new opportunities.
Additionally, given the EPF’s steadily growing asset base, it can increase its investments in the coming years while remaining below the 30-per-cent threshold, he said.
Overseas investments made up about 29 per cent of the EPF’s total investment assets of 731.11 billion ringgit (Bt5.743 trillion), but delivered outsized returns relative to the fund’s gross investment income for last year.
This is because this portion contributed to 39 per cent of the EPF’s gross investment income of 46.56 billion ringgit last year. The figure is an increase of 5.25 per cent compared with 44.23 billion ringgit in 2015.
It is notable that returns from overseas investment contributed to the EPF’s overall investment income growth. This is despite the fund recording a higher equity impairment of 8.05billion ringgit, mainly due to the weak performance of local equities last year.
On Feb 18, Last Saturday, the EPF declared a dividend rate of 5.7 per cent for 2016, with the total pay-out amounting to 37.08 billion ringgit. This represents a decrease from 2015 when the EPF declared a 6.4-per-cent dividend for a total pay-out of 38.24 billion ringgit.
On the other hand, the 2016 figure represents the biggest gross investment income ever recorded since the establishment of the EPF in 1951, and the amount has been growing annually at 11.1 per cent since 2001.
On future investment opportunities, Shahril said the pension fund was looking into growing its exposure in overseas markets, as well as in the real-estate and infrastructure sector.
“Our key focus this year is on building our pipeline of private market assets mainly in infrastructure, property and private equities. We feel that these instruments can provide better inflation-adjusted returns, which is a core target of the EPF,” he said.