EPF to raise overseas exposure to 26% in 3 years

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KUALA LUMPUR: To generate more consistent returns in the long term, the Employees Provident Fund (EPF) is looking to increase its overseas exposure to 26% of the fund’s total investment assets within the next three years, according to chief executive officer Datuk Shahril Ridza Ridzuan. 

“At 23% [present], we plan to move [it up] to 26% over the next three years. So we are looking at adding on about 1% every year,” he told a briefing on the EPF’s 2014 investment results yesterday.

The growth in foreign assets, added Shahril, will come from fixed income, equities and real estate.

This move is undoubtedly driven by the fact that the retirement fund’s global investments contributed 33% of its total income last year, even though it made up only 23% of its total investment assets, according to EPF chairman Tan Sri Samsudin Osman in a statement last Saturday.

As at Dec 31, 2014, the EPF’s total investment assets stood at RM636.53 billion — up 7.91% from RM589.87 billion in 2013 — of which overseas exposure made up 23% or RM146.4 billion. 

Shahril noted that the EPF’s 2014 gross investment income was mainly driven by equities in domestic and global markets, covering both emerging and developed countries.

The majority of its investment assets were placed in low-risk fixed-income instruments as this asset class provides a stable stream of income in the long run, said Shahril.

“A lot of the EPF’s investments hinge on the domestic market and on Bursa Malaysia”, said Shahril, noting that the EPF is less impacted by the depreciation of the ringgit as the bulk of its investment is carried out on Bursa or in Malaysia. 

Despite the economic uncertainties both locally and overseas, Shahril assured that the EPF will continue to offer stable returns this year. However, he did not commit to say whether the retirement fund’s dividend payout this year could surpass last year’s 6.75%. 

What he did highlight was that the EPF does not plan to make any major changes to its portfolio make-up for 2015. 

“There will be very little change ... you will see sometimes that we will shift from a particular asset class to another ... if it is oversold. With companies, we may decide to trade out ... maybe it has been overbought, but we will take that liquidity somewhere else,” he assured.

Last Saturday, the EPF, with the approval of the Minister of Finance announced a dividend rate of 6.75% for the year ended Dec 31, 2014. It had previously declared a 6.35% dividend rate for 2013 and 6.15% for 2012.

In a statement on its website, the EPF said it had achieved a gross investment income of RM39.08 billion for the financial year ended December 2014, up 11.66% compared with RM35 billion in 2013.

Among the EPF’s investments, the equities asset class alone recorded an income of RM22.91 billion in 2014, up 17.37% compared with RM19.52 billion in 2013, and contributed 58.63% to its 2014 gross investment income. Almost half of its equity investment income is derived from its global portfolios.

Loans and bonds contributed RM7.57 billion in investment income last year, compared with RM7.51 billion in 2013; Malaysian Government Securities and equivalents recorded RM6.59 billion in investment income, up 6.14% compared to 2013; real estate and infrastructure contributed RM1.39 billion, up 22.31% from 2013; and money market instruments posted RM619.65 million.

Meanwhile, the 6.75% dividend last year amounted to a total payout of RM36.66 billion, in which RM5.41 billion was required to pay every 1% dividend rate for 2014, said the EPF. This was 10.53% higher compared with RM4.91 billion paid for every 1% dividend rate for 2013, in tandem with the rise in contributors’ savings, it added.

“No doubt the end of 2014 had been challenging for the EPF due to the slump in the global oil prices. The weakening of the ringgit in the fourth quarter added further uncertainty. However, our prudent diversification approach had given us the edge and resilience to weather the economic conditions, particularly in the global markets,” said Samsudin in the statement.

Samsudin also said the EPF aims to provide at least a return of 2% above the inflation rate over a three-year rolling period. The dividend declared for 2014 is equivalent to a rolling three-year real return of 4.11% over inflation.

At the briefing yesterday, Shahril revealed that 1Malaysia Development Bhd had not approached the country’s retirement fund to take up shares in its soon-to-be-listed power asset, Edra Global Energy Bhd.

“Obviously, being the biggest investor on Bursa Malaysia, we intend to look at every single IPO [initial public offering] that comes to the market.

“We have not been approached. We [also] have to wait for all filings to be done and approved by the relevant authorities before [an investment] decision can be made,” he said. As such, he said the retirement fund has not made any decision on the matter.

On another issue, Shahril said the choice of a new chairman for Battersea Project Holding Company Ltd will be left to Sime Darby Bhd and S P Setia Bhd, which have a 40% stake each in the project, while the EPF holds the remaining 20%.

It was reported last month that Battersea Project chairman Tan Sri Liew Kee Sin would step down to focus on other development projects in the United Kingdom.

 

This article first appeared in The Edge Financial Daily, on February 10, 2015.