EPF eyes more investments overseas to boost income

During a media briefing here, the EPF

KUALA LUMPUR: The Employees Provident Fund (EPF) is actively looking for more investment opportunities overseas, as the income from foreign assets is significant towards the performance of the pension fund.

During a media briefing here, the EPF’s chief executive officer Datuk Shahril Ridza Ridzuan emphasised the need to look for more interesting opportunities globally to counterbalance the impact of lower returns from the local equity market.

“In 2009, we had roughly about 6% in global investments, three to four years later it is about 20% to 24%. So, we have been putting in incremental growth over the past few years and you will see more of the same (this year), as we move to that 30% target,” he said.

The fund currently has a cap of 30% in terms of the proportion of assets that can be invested overseas. Shahril explained that the EPF may well increase this cap, but the matter would have to be discussed with the Ministry of Finance first.

“The cap is for the medium term. We operate our asset allocation strategies on a three-year-cycle basis. We will review the cap for the next three-year cycle,” he added.

Although the EPF seems to be close to the 30% threshold, Shahril said that this was a non-issue for the time being.

For example, the fund is also exiting profitable overseas investment assets in which the proceeds would be redirected towards new opportunities.

Additionally, given the EPF’s steadily growing asset base, it can increase its investments in the coming years while remaining below the 30% threshold, he said.

Overseas investments made up about 29% of the EPF’s total investment assets of RM731.11bil, but delivered outsized returns relative to the fund’s gross investment income for last year.

This is because this portion contributed to 39% of the EPF’s gross investment income of RM46.56bil last year. The figure is an increase of 5.25% compared with RM44.23bil in 2015.

It is notable that returns from overseas investment contributed to the EPF’s overall investment income growth. This is despite the fund recording a higher equity impairment of RM8.05bil, mainly due to the weak performance of local equities last year.

On Feb 18, the EPF declared a dividend rate of 5.7% for 2016, with the total payout amounting to RM37.08bil. This represents a decrease from 2015 when the EPF declared a 6.4% dividend comprising a total payout of RM38.24bil.

On the other hand, the 2016 figure represents the biggest gross investment income ever recorded since the establishment of the EPF in 1951, and the amount has been growing annually at 11.1% since 2001.

On future investment opportunities, Shahril added that the pension fund was looking into growing its exposure in both the overseas markets, as well as in the real estate and infrastructure sector.

“Our key focus this year is on building our pipeline of private market assets mainly in infrastructure, property and private equities. We feel that these instruments can provide better inflation-adjusted returns, which is a core target of the EPF,” he said.