EPF: Can't be 'too adventurous' in a challenging 2019

KUALA LUMPUR: Uncertainties worldwide will be the new norm as businesses adjust into 2019, and as far as the Employees Provident Fund (EPF) is concerned, it is not a time for it to be “too adventurous.”

The social security institution views 2019 to be a challenging year, but it is not all bad news as the EPF deems uncertainties as a doubled-edged sword.

Stressing that the EPF is a long-term fund, CEO Tunku Alizakri Alias said that when markets head south, the EPF comes out to hunt.

“Don’t think because markets are bad, it’s necessarily a bad thing.

“It’s going to be challenging this year so let’s stick to what we know and let’s really hunt for the assets that will bring the returns.

“Uncertainty is going to be the new norm, powered by technology and social media, and the global impact will be felt in domestic markets very quickly,” he told a media briefing on the EPF’s 2018 dividend and performance yesterday.

The EPF is also starting to tap the Latin American market and will go in with a “small amount of money which is good enough for it to learn”. “We’re not just going blindly into Latin America. There are some of the bigger economies like Brazil and Columbia that are highly targeted.

“Give us around two to three years and we’ll decide whether to start expanding,” he said, adding that Latin America remains highly exposed to commodities.

With the United States and China starting to record slower growth, weaker oil prices threatening the recovery in the Middle East and the uncertainty of Brexit in the United Kingdom, the EPF thinks that Asean is relatively the safer haven for money.

The pension fund currently has RM833.76bil worth of investment assets, out of which RM222.61bil or 26.7% is invested overseas.

The US tops the list for overseas investment at around RM33.35bil with the UK coming in second at RM25bil.

Meanwhile, out of the RM117.56bil that is being externally managed, 36% is managed in Malaysia itself.

Despite the challenging outlook for 2019, the EPF continues to expect equities and overseas investments to drive income.

The EPF recorded RM50.88bil in gross investment income last year, registering a 10-year compound annual growth rate (CAGR) of 10.26%. Equity remained the main driver, making up the main chunk of 58% of the amount. Out of the RM50.88bil, 40% of the income generated was from overseas investments in 40 countries and 28 currencies.

“Our fund is just so huge that the natural momentum is we’re going to be hitting RM1 trillion in assets under management within the next few years.

“The CAGR of 10.26% is tremendous and since we’re growing larger than Malaysia, we need to get outside Malaysia. We can’t just put all our money in one basket, no matter how wonderful it is,” said Alizakri.

On its plans to increase its private equity (PE) allocation, Alizakri said the EPF was growing with the ones it was comfortable with, such as infrastructure and buildings.

Technology will be its focus area, such as middleware, and it is looking into types of software that are already established.

“We’re working with PE partners who really know their stuff. We’re not comfortable going into the venture capital stage and all that. It will be more towards the middle part and currently existing ones like Facebook or Alibaba. We’ll look for opportunities there,” he said.

On Saturday, the EPF declared a dividend of 6.15% for conventional savings with a payout amounting to RM43bil, and a 5.9% dividend rate for syariah savings with a payout amounting to RM4.32bil.

The total payout for 2018 was RM47.31bil, a marginal decrease of 1.7% from 2017.

He added that the EPF’s performance was consistent with the market, with incomes of RM12.877bil in the first quarter, RM12.385bil in the second quarter and RM14.614bil in the third quarter.

“The bloodbath began in the fourth quarter when we recorded around RM10.9bil. But that is still quite an achievement, considering how bad things were performing at the end of the quarter. We had an interesting roller coaster of a ride for 2018. Domestically, we had the 14th general election and the uncertainties associated with it, and globally, we had the US interest rate hikes, the China-US trade war and Brexit,” he said.

For the past two years, conventional EPF savings have been outperforming syariah savings, but nevertheless, Alizakri said the dividend payouts for both savings over the long run would eventually converge.

Meanwhile, he also stressed the importance of coming out with a clear policy direction to drive Malaysia’s economy. Hence, he was looking forward to the outcome of the newly established Economic Action Council (EAC), the government’s response in terms of the Fourth Industrial Revolution, or IR 4.0, and the policy direction to address Malaysia’s dependence on palm oil.

On Bank Negara’s requirements for foreign insurance companies here to reduce their ownership to 70% to allow local ownership, Alizakri remained tight-lipped on the EPF’s plans, but said that it would definitely take a portion of the stakes offered to the market.

“We are currently evaluating the type of assets and companies that meet our investment profile. We look at the insurance industry as a huge growth industry in Malaysia.

“We won’t take a big bang approach as we are more strategic in nature. We don’t believe in management control, that is the EPF’s investment strategy,” he said.



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