EPF plans to invest more in foreign holdings

Good news regarding EPF, it will raise its overseas holdings to 30% by 2017. The maximum currently allowed is 23% of its portfolio, but strangely enough, it invests only 13% abroad.

Large Government Linked Funds own a much too big piece of the local shareholding, smothering the market, leading to a small free float. Another problem is that, unfortunately, often their interests are not aligned to those of minority investors.

It will raise overseas holdings to 30% by 2017, says CEO

(KUALA LUMPUR) Malaysia's Employees Provident Fund (EPF), the second-largest state-run pension system in the Asia-Pacific region, plans to raise holdings of overseas investments to 30 per cent by 2017 to boost returns.

Boosting returns: EPF, Malaysia's state-run pension system, will start a programme to buy global bonds in the second quarter to rebalance its overseas portfolio to be in line with domestic investments, according to its CEO

The retirement fund, with RM470 billion (S$195 billion) in assets, is currently allowed to invest in foreign holdings as much as 23 per cent of its portfolio, said chief executive officer Azlan Zainol, who manages the fund. EPF's investments abroad now account for 13 per cent and will need to be increased, upon government approval, as the fund would be at least RM600 billion to RM700 billion in five to six years, he said.

'We will continue to focus on areas that will give stable returns for this year and the next few years to come,' Mr Azlan said in an interview in Kuala Lumpur on Tuesday. 'These asset allocations that we've been working on have done us well and have contributed to our income reasonably well and have mitigated all kinds of risks that we are facing.'
The Kuala Lumpurbased manager posted RM27.2 billion of gross income from investments last year, 13 per cent more than it earned in 2010, helped mainly by realised gains in domestic and global equities, according to data published on its website.

The fund outperformed South Korea's National Pension Service, with US$305 billion, which posted a preliminary 2.3 per cent return in 2011, according to the nation's Ministry of Health and Welfare.

EPF was the second-largest sovereign pension fund in Asia excluding Japan, behind the Korean fund, according to a ranking by consultants Towers Watson & Co that was released in September.

EPF will start a programme to buy global bonds in the second quarter to rebalance its overseas portfolio to be in line with domestic investments, Mr Azlan said.

Stocks account for about 80 per cent of the overseas investments compared with 35 per cent in the domestic market, he noted.

The majority of EPF's assets are currently invested onshore, primarily in government bonds. The yield on the nation's benchmark 10-year debt is about 1.5 percentage point above similar-dated Treasuries.
'Technically, we can go up to 42 per cent in equities but we don't want to,' Mr Azlan said. 'We will try and keep it within 35 per cent - even at 35 per cent, I feel you're walking at the edge.'

EPF, which has been a net seller of domestic equities this year, plans to increase its holdings of Malaysian stocks, Mr Azlan said. He said he likes banking, utilities, plantations and companies with high-dividend payouts, strong management and that are well-run.

'Generally, I am quite confident the market will be OK, but from certain angles, I hope there will be some troughs,' Mr Azlan said, adding that the market's valuations are 'attractive'.

The fund's focus will be on South-east Asia with 'the strongest growth in Indonesia over the long term', Mr Azlan said.

EPF also has investments in the UK, the US, Japan and Australian stock markets, while it will invest in China through Hong Kong, he said.

The fund has no plans to apply for an investment manager licence in China, he added.

EPF held RM124.6 billion, or 27 per cent of its assets, in government bonds at the end of December, making it the single largest shareholder in that asset class in Malaysia.

It also held RM160.7 billion in loans and corporate bonds, RM167.2 billion in stocks, RM14.9 billion of money-market bills and RM1.8 billion in properties.

The fund paid out RM24.5 billion to members in 2011, equivalent to a 6 per cent dividend rate, the most since 2000. It paid 8.5 per cent between 1983 and 1987, the highest since its inception in 1952, according to data provided by EPF.

EPF collects more than RM2 billion on average every month from its 13 million members, who make a compulsory 11 per cent monthly contribution while employers add another 12 per cent.

Membership is mandatory for working Malaysian citizens, or non-Malaysian citizens who are permanent residents.

Among the fund's investments, Mr Azlan expects RHB Capital Bhd's proposed takeover of OSK Investment Bank Bhd to be completed by the middle of this year. The fund owns 45 per cent of RHB Capital.

The acquisition will be financed via a combination of new shares and cash and will reduce EPF's stake in RHB Capital to 41 per cent, he added. -- Bloomberg