DATUK Azlan Zainol, says a long-time EPF official, lends a “corporate feel” to the otherwise civil-service-like environment at EPF. But creating an ambience is clearly not Azlan's main priority since the 53-year old accountant joined EPF back in April 2001.
Over a span of one and a half years, the banker has instituted several significant changes, particularly in an area most perceived to be rather weak but most relevant – investments.
Azlan shares with BizWeek his thoughts and plans for the fund.
BizWeek: The Employment Provident fund (EPF) has been facing tough times of late. Just how much more challenging is it going to get?
Azlan: I'm an optimist. I feel that even if war in Iraq were to take place, it would be a short war and therefore, the market, for example, will not stay too long down. But the problem is you can't run away from the fight against terrorism that will last for years and the market may adjust for that. I think, over the short term, the market will not be good but over longer term or three-year period, it will be much better than now.
Since you have been on board, what are the changes that you have instituted and what are the outstanding issues at EPF?
Oh ... There are plenty of things that have been done. But from the investment side alone, we have outsourced funds to more fund managers. It used to be less than 11. We've added on at least three fund managers and have outsourced an addition of RM3 billion to them. Currently, some RM5 billion or 10 per cent of EPF's funds in the equity market is outsourced.
Historically, how have the external managers performed compared to EPF's in-house equity investment?
They (external managers) have only just begun. If you look at over a period of time, we have done much better than them because we have the holding power. So, as a whole we are slightly better than them but there are some that have done better.
The rationale of outsourcing more money is ...
As far as I am concerned, it is because we want to continue to benchmark ourselves with the better ones. Also, if we outsource more funds ... to the better ones ... we will be helping the fund management industry as a whole.
The move to outsource funds should be good as well, given that there is a significant concentration of risk at the moment on EPF which exclusively manages the bulk of the funds, isn’t it?
Well yes, that's one of the reasons. But more importantly is the need to benchmark our team here against the better performing fund managers. That's very important. Also, it allows our people to be trained by them via staff secondment and so forth.
What about the company visits? I hear you personally go with a team to make these visits.
We, over here, carry out company visits, just like analysts. We do this for companies we have more than 5 per cent stake in. I lead the team at these visits. Last year, we went to over 50 companies to talk to them, particularly those with outstanding corporate governance issues.
But have the visits been fruitful from EPF's perspective?
Yes, it has been good. We now know a lot more about the companies and they too understand where we are coming from ... what our expectations are.
Have the companies taken heed of your suggestions?
Some of them, yes. For example, in the Maruichi Steel Tubes Bhd case, we wrote a letter to all relevant parties and the deal was scrapped. It has definitely helped.
What are the other steps you have taken?
EPF has managed to reduce the fees paid out to fund managers. We have reduced the fee by 0.1 per cent which from a total of RM5 billion funds outsourced to them is quite a bit of savings.
Also, since the broking fees were made negotiable, we have managed to negotiate it down. We now pay only 0.225 per cent.
We've also moved to put our people on the board of several companies. We have identified several more companies but we're at this point looking at just 10 companies. The appointments will all take place in the short term within this year.
The criteria in selecting these companies is first, we must have a substantial stake and second, where we think we can protect EPF's interests by placing our people there. For example, Land & General Bhd was losing money, so we got there to make sure that the restructuring is fair to everybody. I
On the move to appoint EPF officials to the board of these companies – Do you see a situation arising where if the pressure to deliver good dividend increases on EPF, will having your people on the boards of these companies give you a chance to ask for more dividends?
The rest is basically administrative. For example, previously, one or two persons can buy blocks of shares. But now we want it to be a lot more transparent. Two or three investment people at EPF need to agree to it. This is purely an internal risk management procedure. We will also be appointing consultants for better risk management for our investments. But before we do that, we'd like to tighten things up over here.
Also, previously, an owner of a counter could approach us to sell (us) shares and someone would pick it up. Not anymore. Now, we will research the counter properly and a few people will need to agree to it before we make our investment decision. And if any one person objects, then we will re-look the whole thing. There's a lot of check and balance internally now as opposed to a year ago.
We will also continue to monitor the companies we have interests in as we don’t want to be shocked by another PN4 company again. We have set up a department purely to monitor these companies to assess which companies have potential to slip into negative (shareholders' fund) territory. Then we will decide if we should sell out, cut losses or whatever. If it's a small amount, then we can cut our losses, but if it's substantial, we'll have to decide what are our other options.
But shouldn’t these things have been put in place from the start anyway?
I don’t want to say that. It's not fair. But where there are improvements to be made, we will try to do so.
Are there limits to what EPF's exposure to any one counter should be?
We limit ourselves to 12 per cent of the paid-up of each company. We generally don't go beyond that. But certain companies we need to have like a 20-30 per cent interest, then we need (investment) panel approval and we have to put it to the board. It's our own internal guidelines.
What about troubled Malaysian Building Society Bhd? What is being done over at that end?
Yes, MBSB is in a mess. What I've done so far is to change the board members. Almost every single one from the old board has left. We have put a new chief executive officer (CEO) in. Our priority now is to do collection of all bad loans. We are also looking at new business. MBSB will concentrate on end financing.
Also, we are taking steps to try and cut loss on some of the loans. We are planning to get into joint ventures to recover as much as we can.
But MBSB's biggest problems also stem from these joint ventures?
Yes, so we will terminate some of them because it is going nowhere and we will form new joint ventures.
Has any of this already taken place?
A lot has taken place. A year over, we've been working on all of this. And we are hopeful that MBSB can turn around soon.
When exactly do you think this will happen?
Within one or two years. God willing, maybe 2004 ... God willing.
Isn't it particularly frustrating for the fund that its avenue for new investments is limited? For example, the fund, as it stands, cannot invest overseas.
It's a matter of whether or not the government feels comfortable that some money will flow out of the country. Right now it is a “no, no” but privately I'm not giving up.
What about the move to divest EPF's holdings in non-halal stocks? Why so?
It has been the strategy for a while ... it's not new. We are now waiting for right time to sell down.
Do you think the move is fair given the “demographics” of your contributors?
Basically, over 50 per cent of EPF contributors are Muslim. The important thing that needs to be highlighted is that if we look at the index and take out these non-halal stocks, the performance of the index is not quite different.For example, gaming stocks, they have the tendency to fall quite sharply.
How long will it take for EPF to wind down its holdings in these stocks?
There is no specific time. But we just want to make sure that we don't lose too much money before we dispose of them.
Personally, how has it been Datuk?
Great. I feel great.
The important thing is I feel there's a change in people's attitude over here. They are a bit more corporate.
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