Tuesday, March 26, 2013

EPF to increase foreign investments up to 23% of total assets

KUALA LUMPUR (March 26, 2013): The Employees Provident Fund (EPF) will continue with its aggressive stance on foreign investments by growing the portfolio to between 21% and 23% of its total assets within the next one to two years, from 17% currently its deputy CEO for investment Datuk Shahril Ridza Ridzuan said.

As at Dec 31, 2012 EPF's total investment assets stood at RM526.75 billion.
EPF's appetite for foreign investments have almost doubled since 2010 when it only made up 9.2% of its total assets.
"For the moment we are still increasing our global allocations. Part of the reason for that is to cater for the growth in our funds. The EPF grows roughly by 9% per annum so we don't need to put a lot of that money to use otherwise we'll have a very big cash drag in terms of returns for contributors," Shahril told reporters at the opening of the inaugural EPF Global Private Equity Summit 2013 yesterday.
"We will then re-look (upon reaching the target) to see whether it is within the risk return framework that we want or whether we want to adjust that number," he said.
Currently EPF is allowed to invest up to 23% of its portfolio overseas.Shahril will be made CEO of EPF come April 16, 2013.
Investment in properties make up about 2% of the EPF's total investment portfolio. It mainly invests in fixed income funds and equities.
Expanding on EPF's investment strategy in foreign markets, Shahril said EPF is focused on the markets that it knows well and is comfortable with, rather than going into new markets.
"We do need to have some diversification in terms of assets which are not denominated in ringgit for several reasons. Firstly for exposure and secondly for different opportunities, because within the Malaysian context there are things we can invest in but at the same time we have to be very careful given the size of EPF, so we don't overcrowd the market for other funds and investors," he said.
Shahril added that although it invests a certain percentage of its assets in other markets, these investments do not deviate from its investments locally which are namely in blue chip, cash flow-driven type of assets and "very safe" assets which fit into its risk profile.
"We are cognizant of the fact that we need to do all this in the context of meeting our objectives to our contributors. Primarily capital preservation as well as making sure that we have an inflation adjusted return that gives basically to our contributors a real rate of return. Last year we were quite successful in that strategy and that's the strategy we will continue to employ for the foreseeable future," he said.
Shahril said while the retirement fund is invested in emerging markets and developed markets such as the US and Europe, it will continue to focus on Malaysia and Southeast Asia for private equity investments.
"Because of the financial crisis in the last few years, there are opportunities for us in terms of acquiring assets at decent valuations. If you look at the Malaysian context, we've also been doing a lot of direct investments for instance last year, we worked together with Johor Corp and CVC Capital Partners Asia III Ltd to acquire KFC Holdings (M) Bhd and I think we'll be doing a lot more of that kind of investment as we look for longer term investments that meet the risk requirement for EPF," said Shahril.
He added that it has a fairly wide range of assets but generally favours companies that get their revenues directly from consumers such as KFC Holdings and PLUS Expressways as well as utilities such as Malakoff Bhd which is expected to be listed this year.
EPF chairman Tan Sri Samsudin Osman said 2% of its total assets or RM10 billion is invested in private equity and the amount is expected to increase.
"We review our asset allocation every two years. It is due now this year and we will see how much our consultants suggest to us. We can't say how much at the moment," he said.
Samsudin said EPF is giving a lot of importance and attention to private equity and is looking at the Asean market particularly Malaysia, China and Indonesia for private equity investments.
"Our focus is generally ourselves and Asean, without excluding China. The growth of private equities is dependent on macroeconomic factors and these countries are growing faster than the developed nations that's why people are looking here for private equities," he added.

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