Special Report: Reviewing unit trust portion of members’ savings

This article first appeared in The Edge Malaysia Weekly, on April 22, 2019 - April 28, 2019.
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NOT many would know that a portion of the retirement money of Malaysian Armed Forces personnel with Lembaga Tabung Angkatan Tentera (LTAT) is saved in the form of “units” instead of cash.

It is understood that LTAT had been declaring special bonuses in the form of units in Affin Hwang Asset Management Bhd’s unit trust funds since at least FY2004. LTAT’s 2017 annual report shows that it had also paid special bonuses from FY1996 to FY2000.

Its annual reports also show that some RM1.75 billion has been declared as unit trust units between 2007 and 2017. For the financial year ended Dec 31, 2017 (FY2017) alone, LTAT declared RM188 million in special bonuses for its members in the form of units in Affin Hwang unit trusts.

Without providing specifics on the amount of savings unit trusts, LTAT’s new CEO Nik Amlizan Mohamed tells The Edge that LTAT is looking to better manage the unit trust portion of the savings to maximise returns for its members.

“We need to redesign it because the role of LTAT is to take care of the soldiers’ money actively until the day they retire. However, in this case, when we buy unit trust funds on behalf of the members, we buy and then we don’t manage it anymore. It is a one-way street,” says Nik Amlizan, adding that returns could have been better with active management by LTAT on the members’ behalf.

Those that are financially savvy would know that returns on different types of unit trust funds would differ with market conditions and one can derive better returns by knowing, for instance, which asset classes tend to do better in a bull market versus a bear market.

As the unit trust portion of savings is currently not actively managed, LTAT is not redeeming the units when returns are high enough and converting them into cash or another type of unit trust with a different portfolio and risk profile that has better potential of outperforming.

“For example, if we had bought the fund when the market was trending upwards, an aggressive equity fund is the way to go because it gives us the best return.”

Nik Amlizan says that if LTAT gets to manage the unit trust funds on behalf of its members, the pension fund manager can also vary the risk taken based on the soldiers’ age profile.

“Maybe in the early years, they should be having more aggressive investments — they can take a bit more risk — but towards the end, maybe just the simple, lower risk type of unit trust funds, for example. So that is what I want to do.

“It is our duty to manage the funds until the day the soldiers retire. We have to take back control of the funds in the unit trusts,” says Nik Amlizan.

Affin Hwang AM is a 70%-owned subsidiary of Affin Hwang Investment Bank, which is a 100%-owned subsidiary of Affin. LTAT owns a direct 35.5% stake in Affin, while Boustead Holdings Bhd owns 20.73%. LTAT owns 59.45% equity interest in Boustead.

For FY2018, Affin Hwang IB recorded a profit before tax of RM161.5 million, which was lower than the RM184 million in the preceding financial year, mainly attributable to lower investment income due to the challenging market environment.

As at Dec 31, Affin Hwang AM’s assets under administration stood at RM47.8 billion, an increase of 0.84% from a year earlier, driven by the higher net inflows secured throughout the year despite the adverse market condition, as well as the removal of tax exemption on interest income earned by wholesale money market funds.

 

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