KUALA LUMPUR: The Employees Provident Fund (EPF) reported a 13.47% growth in investment income to RM10.4 billion for the second quarter ended June 30, 2014 (2Q14), from RM9.16 billion in the previous corresponding period.

“Both domestic and international equities generated investment returns of RM6.49 billion, which marked a rise of 16.06% or RM898.50 million, compared to the corresponding period in 2013,” said the EPF in a statement on Aug 02 (Tuesday).

Out of the total equity investment returns, 42% was contributed by international portfolios.

Equity investments remained as the main contributor to the EPF’s 2Q14 performance.

Loans and bonds were the second largest contributor to the EPF’s investment income, generating a 21.23% increase in returns to RM1.85 billion, from RM1.53 billion a year ago.

Malaysian Government Securities and Equivalents generated an income of RM1.74 billion, registering an increase of 13.77% compared to 2Q13.

EPF chief executive officer Shahril Ridza Ridzuan said the fund will continue to put greater emphasis on clinching sustainable long-term returns, as opposed to just focusing on short-term returns.

“We are pleased with the 2Q14 results, as we are able to maintain the previous quarter’s momentum, on the back of a stable and encouraging Malaysian economy.

“The improved global investment climate, particularly in the emerging markets, had also facilitated us in carrying out our investment and profit-taking activities,” he said in the statement.

In 2Q14, income from real estate and infrastructure came to RM184.12 million, compared with RM296.28 million in 2Q13, while money market instruments contributed RM107.32 million.

Investments in real estate and infrastructure represented RM14.92 billion or 2.44% of the EPF’s total investment assets, as at June 30.

“The inflation rate has been on a rising trend since 2009, and is expected to further increase, temporarily, in 2015.

“With this in mind, we continue to explore and diversify into alternative investments, namely real assets comprising both real estate and infrastructure,” said Shahril Ridza, adding that these asset classes are effective inflation hedging tool.

He said the EPF aims to provide at least 2% of real returns over a three-year rolling period to its members, in line with the fund’s objectives of preserving and adding value to members’ savings.

As at June 30, its investment assets registered growth of RM58.49 billion to RM612.41 billion, from RM553.92 billion in 2Q13.

Of the amount, 22% was invested in global markets. Overseas exposure comprises global equity (17%), bonds (3%), private equity (1%) and real estate (1%).

“Year-to-date, overseas investments and external fund managers have both added value to the EPF’s overall returns, by contributing 28% and 14% respectively towards our total income for the first half of the year,” said Shahril Ridza.

He said in the quarter, the EPF injected RM3.4 billion into external fund managers, of which US$350 million (RM1.11 billion) was channelled to global equity mandates and US$300 million to global sukuk mandates.

“For the domestic mandates, RM800 million was injected into domestic bonds and RM500 million into equity,” he said, adding that its exposures managed by external fund managers to date, stood at 12.77% across equity and fixed income instruments, for both domestic and global mandates.

This article first appeared in The Edge Financial Daily, on Sept 03, 2014.