EMPLOYEES Provident Fund (EPF) chairman Tan Sri Abdul Halim Ali hinted in a speech that dividends to its members this year could be below last years 5% as low interest rates have hampered the funds ability to reap better returns from its investments.
He said with 75% of EPF funds invested in fixed income bearing instruments, the low interest rate environment would impact upon the EPFs ability to pay dividends at rates comparable to those of previous years.
The Star had last week quoted sources as saying that dividends ranging from 4.5% and 4.8% had been proposed by the board of the EPF to the Finance Ministry.
Halim, who was speaking at the EPF external portfolio managers award ceremony in Subang Jaya on Monday night, described the new environment of economic uncertainty and geopolitical concerns as challenging, and warned of a bumpy road ahead.
Likening the pension fund managers role of balancing between security and returns to expert trapeze artists balancing on a tight rope without a safety net, Halim admitted this act was a daunting one to perform.
As the countrys largest pension fund with 10.3 million members, the EPF has investments of RM200bil, with approximately RM150bil invested in low risk fixed income bearing instruments and RM50bil in equities. The latter represents about 10% of the total KLSE market capitalisation.
The days of FD (fixed deposit) rates of above 7% or 8% and equity market returns in the high double-digits are not going to be around for some time, said Halim.
Halim said that despite low interest rates and stock market volatility with the KLSE Composite Index (CI) closing at its lowest since 1998 last year, he was glad the EPF portfolio managers still managed to outperform the CI, with some performing extremely well.
He said that currently, about 10% of EPF funds for equity investment and less than 1% of the funds for fixed income investments were outsourced to a total of 12 external portfolio managers, who in total manage RM5bil in equities and RM1bil in bonds.
According to Halim, the size of the EPF outsourced funds, currently accounting for 10% of the total funds handled by the fund management industry in Malaysia, would likely be increased in the future.
More players in the market means more competition, which we believe, will promote market efficiency by unlocking values, he said, describing the EPFs diversification efforts through outsourcing as one of a number of risk management strategies being pursued by the fund. New avenues of investment and new instruments are being explored continuously to provide returns that are commensurate with risks, he said.
Halim reminded fund managers that they needed to ensure the companies they invested in practised good corporate governance and asked them to participate actively in AGMs and EGMs to deter companies from engaging in actions that are detrimental to the EPF in particular and minority shareholders at large.
Halim later presented AM Investment Management Sdn Bhd with the award for the best overall manager among its 12 external portfolio managers.
AM Investment Management won the best three-year realised return manager award, while Commerce Asset Fund Manager Sdn Bhd achieved the best one-year realised returns.
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