Pension fund likely to tap into local insurance sector, and new markets in Asia and Latin America
By ALIFAH ZAINUDDIN / Pic By MUHD AMIN NAHARUL
The Employees Provident Fund (EPF) will continue to seek new investments globally despite a cloudier 2019 outlook as Brexit uncertainty and the ongoing US-China trade war continue to plague markets.
The country’s largest pension fund, which manages RM833.76 billion in assets, is looking to capitalise on the current stock market weakness by diversifying its holdings and strengthening its portfolio of long-term assets.
CEO Tunku Alizakri Raja Muhammad Alias (picture) said the fund has grown at a staggering 10-year compound annual growth rate of 10.26%. In 2018, it recorded an investment income worth RM50.88 billion.
“At a growth rate of 10.26%, we have to get out of Malaysia because we are outgrowing the country’s growth rate.
“Malaysia is now too small for us, so we cannot just put all our money in one basket, no matter how wonderful this basket is,” he said at a media briefing on the EPF’s 2018 financial performance in Kuala Lumpur yesterday.
The EPF needs to generate RM7.72 billion to pay every 1% of dividend for its conventional and Shariah-compliant portfolios.
It recently declared a dividend rate of 6.15% with a payout of RM43 billion for its conventional savings and a 5.9% dividend worth RM4.3 billion for its Shariah savings.
Tunku Alizakri said equities continued to be the main driver of its gross investment income in 2018 with RM29.28 billion, although the figure fell short of the RM31.48 billion it achieved in 2017.
Currently, the company invests in 40 countries with its overseas portfolio amounting to RM222.61 billion.
Tunku Alizakri does not deny the possibility of tapping into the local high-growth insurance sector, as well as exploring new market opportunities in Asia and Latin America.
He said the fund is evaluating the prospect of acquiring some shares in foreign insurers operating in Malaysia, given Bank Negara Malaysia’s rule on foreign ownership of local entities.
“Of course, we are very open towards exploring this. We look at this industry as a huge growth sector in Malaysia. We know for a fact that Malaysians are heavily insured at this point of time, and that foreign companies also have a lot of good infrastructure.
“We are much more strategic in that nature. We don’t believe in management control. That is the EPF strategy. So, we will definitely take a portion of the stake that is being offered in the market,” he added.
Tunku Alizakri said the fund will also continue to invest in emerging markets, specifically in countries that meet its restricted profile.
“For us, we do have some set perimeters and we even go into a relatively risky market…maybe the exposure might not be too high.
“For example, in Latin America. That is a new market for us, but what we do is we put in a small amount for us to learn from. Once we start learning and understand the market, that is when we will start exposing more and more,” he said.
Meanwhile, Tunku Alizakri said the fund is keeping its assets in the UK despite mounting Brexit risks, as the country is still deemed as the financial capital of the world.
The UK is one of the fund’s top overseas investment destinations, representing 3% of
its total current assets under management.
“We think an exit is still going to happen…so, it is about how we manage it. We were told that the financial industries would most likely have twins — one in the UK and one somewhere in Europe.
“It is still up in the air, but I think we will get an answer very soon,” he added.