The Employees Provident Fund (EPF), the world’s sixth largest pension fund, is among the first government-linked funds to buy into London’s commercial real estate as it seeks to maintain its dividends for the private sector employees.
Its bold ventures abroad has generated pockets of grumblings and criticisms at home.
Besides commercial real estate, the fund has also partnered with international logistics group Goodman to invest up to 500 million euros (RM2.164bil) in the German logistics property market.
Earlier this year, it was reported that a partnership Kwasa Goodman Germany has an initial equity commitment of 500 million euros and has already acquired about 200 million euros of assets in Germany comprising mostly warehouses with long leasing period by good credit rating tenants.
The rationale for this investment, as with its foray into the global commercial market, is to enable EPF to provide returns to the growing number of contributors. It is a 70:30 partnership, with EPF holding the larger share.
There is “little room to grow domestically” and the search for “better yields” to meet “its obligation” is great, a paper presented by EPF CEO Datuk Shahril Ridza Ridzuan earlier this year said. The move into logistics is a diversification into European real estate.
Besides Germany and UK, the EPF has commercial buildings in Australia, Singapore and France since 2010.
Last year, it declared 6.35% devidend for 2013, the highest in over a decade. The EPF has consistently outperformed its guaranteed minimum dividend of 2.5% annually. The fund has a total of 13.95 million contributors.
Its deputy chief executive officer for investment Mohamad Nasir Ab Latif (pic) answers questions pertaining to its UK investments.
SBW: What kind of yields is EPF getting from their investments in UK since 2010?
EPF: Our net initial yield (before leverage) in the UK market ranges between 5% and 7%. The yield varies with location, sector and tenant profile.
Can we have some kind of details since 2010?
To date, we have 23 properties in the UK, mainly in commercial, retail (supermarkets) and healthcare assets.
What percentage of EPF’s funds are set aside for property investments in UK? We understand EPF’s total investment assets as at May 26, 2014 was RM597bil.
Guided by our Strategic Asset Allocation, we have a 4% allocation in global real estates, which is higher than what we have invested to date. Our aim is to invest the amount allocated over a period, taking into account cycle and value. We will gradually grow our real estate assets over a wider range of segments and regions within our risk framework when the opportunities arise and those which can generate good yields.
What is the breakdown of investments (in equities, fixed income, etc)? Specifically, how much has been invested in properties today?
Most of EPF funds are invested in low risk fixed income instruments and equities.
Our total investments in real estate is about 2.2%, of which about 1.2% is invested in global real estates.
Do you think UK is overvalued now? Are you looking at US/ Europe? How much will be allocated to foreign investments?
There are views that the UK market is overvalued, primarily in the residential sector. Having said that, circumstances from one investor to another may differ in terms of difference in risk appetite, investment horizon, cost of capital and etc.
As a pension fund and long-term investor, we are continuously looking for opportunities that meet our returns requirements and risk appetite both in domestic and global markets. Despite significant allocation in global real estate, our focus is always capital preservation and risk-adjusted returns.
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