EPF records RM12.16b gross investment income in 1Q 20

EPF chief executive officer Tunku Alizakri Alias said the pandemic had a massive impact on an unprepared world, with lives being forever transformed and economies crashing to unprecedented levels.

KUALA LUMPUR: The Employees Provident Fund (EPF) registered gross investment income of RM12.16bil in the first quarter ended March 31,2020 as its investment assets were impacted by the fallout from the Covid-19 pandemic.

“All asset classes were severely affected, particularly equities which suffered steep declines with the global markets going down as much as 32%, while our local FBM KLCI dropped by 15% as at March 31,2020, ” said its chief EPF officer Tunku Alizakri Alias.

In a statement issued on Saturday, he said in 1Q, fixed income instruments contributed RM4.87bil to gross income.

Real estate and infrastructure, as well as money market instruments, contributed RM0.43bil and RM0.54bil respectively. Equities registered RM6.32bil, or 52% of total gross income.

“After taking into consideration the write-down on listed equities, a prudent practice by the EPF in ensuring that its long-term investment portfolio remains healthy, net investment income came in at RM7.50bil, ” he said.

Alizakri said it was an exceptionally challenging period due to the pandemic which had a massive impact on an unprepared world, with lives being forever transformed and economies crashing to unprecedented levels.

“This happened on the back of an already weak global environment characterised by extremely low oil prices and market volatility from uncertain and unpredictable geopolitical issues ongoing since 2019, ” he said.

Alizakri pointed out the yield on fixed income investments was impacted due to cuts in interest rates following the move by central banks across the world to introduce various monetary policy measures to support households and businesses.

Despite the difficult environment in 1Q, the EPF recorded some soft recoveries in various markets since April amid the continued market volatility.

“With the aggressive plans implemented by major economies to combat the virus and prepare for a post Covid-19 recovery, we are hopeful to see market sentiments improving in the near future.

“As a long-term provident fund with a global investment footprint, the EPF always employs strict discipline in all our investment decisions, guided by a long-term strategy which ensures that we remain cautious and not make rash decisions based on short term market reactions.

“Hence, we are well-positioned to not only ride out the current volatility but also to take advantage of the declines in valuations of fundamentally strong assets, ” he said.

Alizakri added that the EPF is making the most out of the current headwinds in global markets with its continued investment presence in overseas markets, which makes up 28.8% of the fund’s total investment assets.

Thanks to the EPF’s Strategic Asset Allocation (SAA), the fund managed to outperform many equity funds despite the market downturn, as the flight to safer assets such as bonds have boosted its fixed income returns and provided a cushion from the decline in equity prices.

EPF’s SAA allocates 54% to fixed income instruments, 36% to equities, 6% to real estate and infrastructure and 4% to money market instruments as a reflection of its long-term goals, to ensure prudence and prevent overreactions to market movements.

Against the backdrop of the pandemic, the EPF swiftly adapted its services and products to balance the immediate and real cash-flow needs of members while fulfilling its mandate to protect their future retirement savings.

In March, the EPF lowered the statutory employee’s contribution rate from 11% to 7% to assist in supporting members’ monthly disposable income.

Following this and as a response to members’ urgent cash requirements during the Movement Control Order (MCO), the fund had allowed for members to temporarily access part of their retirement funds in Account 2 via the i-Lestari Withdrawal facility.

As at June 5, a total of 4.1 million applications were made with RM1.94bil withdrawn. The fund also recognised the urgent need of employers in managing their immediate cashflow positions.

To address this issue, the EPF launched the Employer COVID-19 Assistance Programme (e-CAP) in April to allow the deferment and restructuring of employers’ contributions to workers’ EPF savings.

By June 5, 2020, the fund had approved 6,500 employer applications with a value of RM42.9mil.

Alizakri said, “These initiatives were extended as we fully empathise with the profound challenges our members were facing, amplified by the uncertainty in their employment and financial prospects particularly during the MCO quarantine period and subsequent economic slowdown.

“The first quarter results are illustrative of the fact that the world and how we live are now forever transformed. While we still do not know how long the pandemic will last, nor the full extent of the economic fall-out, we believe the situation will eventually stabilise.

“Still, it is critical that we learn our lessons and adapt accordingly so that we can take advantage of the opportunities the COVID-19 crisis has presented. We must redesign our global infrastructures as well as economic and social models for a better future for all of us, ” he added.