Cover Story - Striking a balance

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on October 8, 2018 - October 14, 2018.
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It has been less than two months since Tunku Alizakri Raja Muhammad Alias took over as the CEO of the Employees Provident Fund (EPF) but he already has a vision of what the retirement savings fund can become. To do so, the EPF has to leverage its status as the country’s largest social security institution that works for the greater good of its members and society as a whole.

Alizakri, 48, is no stranger to the EPF. He joined the institution in 2014 as deputy CEO (strategy) and was put in charge of national policies for social protection and developing the EPF’s products and services. He was responsible for corporate strategy and affairs, human capital and talent development as well.

Alizakri is also a member of the EPF’s management investment committee, which ensures all investment recommendations adhere to the body’s governance and risk controls.

Although the work experience gained over the past few years made it easier for him to fit into his new role, it still has been a period of adjustment, Alizakri tells Personal Wealth in his first media interview since becoming CEO.

“My first real trepidation [in this new role] is the investment side. The EPF is known for its investments and deals but I don’t have an investment background.

“Fortunately, these past few weeks have been quite painless because of the strong team that has been supporting me and allowing me to ask all the basic questions. This is the time for me to do it because if I am still asking the basic questions five years from now, then I shouldn’t be doing this job,” he jokes.

But not having an investment background does have its advantages. “Sometimes, I ask the team questions that no one else has. This lights a bulb in their heads and prompts a discussion that perhaps it is an area for us to improve on. That’s how I think I am bringing a fresh perspective to the EPF,” Alizakri points out.

“Having said that, the new role is not completely foreign to me. I think if I had been from outside the EPF, it would have been a real challenge. But since I’ve over 4½ years of work experience with the institution, I have already been inculcated with its culture and way of doing things.”

Alizakri has his own set of strengths: broad experience in policy development, strategic planning and communications, and prior to joining the EPF, he served as the chief marketing officer and chief operating officer of the Iclif Leadership and Governance Centre.

Other roles include director of strategic management at Bank Negara Malaysia, director and head of strategy and corporate affairs at Digi Telecommunications and vice-president and head of group strategic planning at Malayan Banking Bhd.

A qualified barrister of Lincoln’s Inn, Alizakri practised as an advocate and solicitor in the courts of Malaysia and also holds a Master of Business Administration from Cornell University.

Being a CEO means a steep learning curve but Alizakri says he does not mind a crash course. “Personally, I think it is a great privilege as I have always loved continuous learning, and in the EPF, it’s like a master class. I’m being guided by some of the best teachers in the country. At the end of the day, our objective at the EPF is still the same no matter what functions we have — doing the best for our members and employers.”

Looking beyond returns

When he joined the EPF, Alizakri’s job was to peer into the future and determine how the institution could stay relevant. He was also in charge of the social security function, where he spent a lot of time ensuring that every employee in the country had a social safety net. This is why the first few initiatives he wants the EPF to spearhead entail looking beyond financial returns for its members.

“The EPF’s main responsibility is to ensure that the investments make financial sense, that they generate good returns. When I became the CEO, I started to ask, ‘why are we not looking at the power that the EPF has to bring about real change to its members?’ Because if you think about it, the EPF has about 14 million members. Statistically speaking, if we get it right for 14 million members, we will get it right for the whole of Malaysia,” says Alizakri.

He adds that it is not going to be easy or enough for the EPF to focus solely on percentile returns going forward because of yield challenges, rising interest rates and market volatility, among other factors. Therefore, the retirement savings fund is looking at investment opportunities that will not only generate financial returns but also make a social impact.

“One example is real estate investments. Some of the funds that we have looked at and are very excited about buy distressed assets to be transformed into refurbished offices. Not only will we be able to get better yields from these but we will also be creating community spaces.

“We are looking at creating a mix of residential and commercial spaces, so people who live there can also work there. They don’t have to spend hours travelling across town to reach their workplaces. This is just one example. There are other asset classes that we are looking at as well,” explains Alizakri.

However, the implementation of these initiatives will not be as straightforward as it sounds. The EPF will face a few challenges. On the social impact side, there is a lack of good reporting and standardisation, and even differing definitions of the term “social impact”.

Alizakri says most people equate social impact with adhering to environmental, social and governance (ESG) principles, although this may not necessarily be the case. “Personally, I think following ESG principles is very much a box-ticking exercise. It is just something along the lines of doing no evil. But is that enough? On the other hand, social impact involves actually doing good.”

In recent years, the EPF has integrated ESG aspects into its investment monitoring process. According to its statement of compliance, preliminary analysis is done at the screening stage, where certain investments from an ethical perspective (such as tobacco, gambling and liquor) are filtered out.

Early last year, the retirement savings fund introduced Simpanan Shariah to its members. When this shariah-compliant option was implemented, the process of integrating ESG principles into its investment processes and decisions became more intense.

The EFP has also developed its own rating tool to assess the ESG quality of its investee companies. This is based on questions ranging from how the company adheres to the corporate governance code and disclosure standards to how it integrates ESG into the organisation and the conduct of general meetings.

According to Alizakri, the EPF is holding internal discussions to determine whether making social impact investments is the right step for it. On the one hand, the view is that it is the EPF’s job to ensure that its members enjoy healthy dividends and that nothing else matters. On the other hand, the view is that the EPF should not just focus on ringgit and sen but also do something to ensure that the rights and interests of its members are protected.

“As the largest organisation by asset size in Malaysia, we can make a real difference in people’s lives. But how do we report the intangibles? How do we measure them? We ourselves do not know yet at this point of time. But that’s what makes it exciting,” remarks Alizakri.

There is also the challenge of meeting members’ expectations of the amount of returns. As the members have always been given superior returns, it can be difficult to implement something that may affect them, observes Alizakri. “Come January, they will start asking us, ‘how much dividend can we expect this year?’ Some members may not see where we are coming from. So, we need to start educating our members that dividends are not purely financial. Social dividends exist as well.”

The EPF is already sharing its thoughts on this matter with its partners and stakeholders. However, it will take time before any major decision or announcement is made as the institution will need to come up with a proper framework first. “We need to know what our own expectations are. At the end of the day, we need to ensure [that we are able to generate a] certain amount of ringgit returns. But what is the threshold that is acceptable to our members?

“They might be happy when we say that we want to make investments that will have a social impact but the minute we announce lower dividends, we will probably never hear the end of it. So, how far are our members willing to balance ringgit and social returns? We need to engage with our members and stakeholders to see how we can work this out,” says Alizakri.

Fortunately, unlike the baby boomers, the Gen Y and Gen Z, who now constitute a major portion of the EPF’s members, are not driven by pure financial parameters, he comments. “I personally have a very positive outlook on these generations. They are willing to balance ringgit and social returns, and they want to see the impact of their investments.

“I think this is a very exciting, new and uncharted world that we are going into. Who else to do this better than the EPF? We have our hearts set on it and we should definitely champion it. The EPF is, after all, the largest soft power in Malaysia. We can do a lot of harm if we do it wrongly but we can also do a great amount of good if we are looking in the right direction,” says Alizakri.

Working with the Gig economy

Malaysia’s gig economy — a labour market that is characterised by the prevalence of freelance work as opposed to permanent jobs — is currently on the rise. Due to the lower barrier of access to smartphones and 24/7 mobile internet connectivity, more Malaysians are choosing to offer their services via platforms such as Grab, GoGet and instead of looking for formal employment.

In a previous interview with Personal Wealth, the EPF said there has been a double-digit increase in the proportion of self-employed workers in urban areas since 2010 — rising from about 11% in 2010 to 16% in 2016, or an increase of more than 760,000 people in six years.

Recently, the EPF also revealed that of Malaysia’s 22 million working-age population, 62% were self-employed, outside the formal labour force and not covered by any form of social protection.

“We have seen the rapid growth of this informal sector in the past few years. Unfortunately, from a social security perspective in Malaysia, we don’t have an infrastructure that can protect this growing group of the economy,” says Alizakri.

Due to such concerns, the EPF began talks with one of the biggest gig economy players, Grab Malaysia, to gauge its interest in promoting i-Saraan (Caruman Sukarela Insentif Persaraan) — the institution’s voluntary retirement savings scheme — to its driver-partners.

Formerly known as the 1Malaysia Retirement Savings Scheme, i-Saraan is designed to allow individuals who are self-employed or who receive no monthly income, such as taxi drivers, petty traders, freelancers as well as those working in the gig economy, to save for their retirement while enjoying the same benefits as EPF members.

“When we started talking to Grab, we shared that we think it should be providing its driver-partners with social security. It does, after all, play a significant social role in the future of its driver-partners.

“Grab understood where we were coming from and saw this as something very beneficial. So, it ‘grabbed’ the chance to work with us and start something completely new. We haven’t seen similar models elsewhere in the world,” says Alizakri.

In August, the retirement savings fund inked a memorandum of understanding with Grab Malaysia to encourage the company’s driver-partner community to participate in i-Saraan. Effective Aug 16, Grab contributes 5% to the amount contributed by selected driver-partners, subject to a maximum of RM80 a year.

By contributing to the scheme, the driver-partners can enjoy annual dividends on their retirement savings, tax relief, death benefit and access to the EFP’s retirement advisory service.

Alizakri hopes more players from the gig economy will follow suit. “Previously, these companies saw the EPF as a tax. It is not. The contributions that they put in are income tax-free and capital-guaranteed. The fees, if any, are minuscule. So, other gig economy players should see it as something they can offer as an additional benefit to those working on their platform. Now, where can you find a greater deal than that?” says Alizakri.

He also advises those currently working on gig economy platforms to start contributing to i-Saraan before it is too late. “Some may think that they are too young to save for their retirement or that they will find a formal job to contribute to the EPF later. The fact is that you can never be too young to start. The earlier you start, the faster your savings will grow no matter how little you put in,” says Alizakri.

Turning digital

The CEO has other plans for the EPF as well. In the next two years, the institution will strive to become a digital organisation.

“We understand that to a certain extent, members want to have a certain amount of control over where the investments go. The implications of being a digital organisation is that the power now goes to members to make guided decisions, which fits their lifestyle and their aspirations. We are in the process of coming up with a proper electronic platform, as well as digital apps that are more empowering,” he says.

“In Malaysia, the EPF has one of the most powerful economic influences over companies out there. We have both the economies of scale and economies of scope. So far, we have over 14 million members as well as half a million employers in our database.”

With these advantages, Alizakri says the EPF plans to negotiate with these companies better deals for myriad products and services that their members can enjoy in their retirement. “One example is insurance. Which insurance company out there won’t want access to our 14 million members? But in exchange, we want the company to offer our members products that are cheap and practical to them. On our side, we will make sure that the information of our members is protected.”

He adds that there is something exciting in the works regarding the EPF’s electronic platform and digital applications. However, this will only be revealed in the coming months. “We think of the EPF as a sleeping giant that is starting to wake up. And since we are a giant, we must be careful about the steps we take — if we make the wrong moves, we could literally flatten towns and villages.

“This is also why when we choose the talent for our organisation, we ensure that they not only have the brain power but also the heart power, and that their values are aligned with the interests of the country and the people. Malaysians should rest assured that their retirement future is in good hands. Watch this space,” Alizakri concludes emphatically.