EPF posts RM12b 1Q gross investment income

Pension fund records some soft recoveries in various markets since April amid continued market volatility

by S BIRRUNTHA/ pic by MUHD AMIN NAHARUL

THE Employees Provident Fund (EPF) recorded a gross investment income of RM12.16 billion for its first quarter ended March 31, 2020 (1Q20), in what it called an “exceptionally challenging period” due to the Covid-19 pandemic.

CEO Tunku Alizakri Raja Muhammad Alias (picture) said all asset classes were severely affected, particularly equities which suffered steep declines as global markets fell sharply, while the FTSE Bursa Malaysia KLCI (FBM KLCI) dropped by 15% as at March 31, 2020.

“The pandemic 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 in a statement on Saturday.

The fund’s fixed income instruments contributed RM4.87 billion to gross income in the quarter.

Real estate, infrastructure and money market instruments contributed RM430 million and RM540 million respectively.

Equities investment earned RM6.32 billion or 52% of the 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 RM7.5 billion,” he said.

The EPF recorded a total investment income of RM9.66 billion in 1Q19 due to lower income from its equity investments, which contributed 43% or RM4.16 billion of its total investment income.

Its fixed income investments contributed 50% or RM4.85 billion and it did not provide a quarterly net investment income in 1Q19.

Tunku Alizakri said yields on fixed income investments for 1Q20 were impacted due to cuts in interest rates following moves by central banks across the world introducing various monetary policy measures to support households and businesses.

He said 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,” he said.

Tunku Alizakri added that the fund is well-positioned to not only ride out the current volatility, but also to take advantage of the declines in valuations of fundamentally strong assets.

The EPF, he said, is making the most out of the current headwinds in global markets with its continued investment presence in overseas markets that account for 28.8% of the fund’s total investment assets.

“Thanks to 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 has boosted its fixed income returns and provided a cushion from the decline in equity prices,” he said.

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 cashflow 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 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 RM1.94 billion 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, the fund had approved 6,500 employer applications with a value of RM42.9 million.

Tunku Alizakri said these initiatives were extended as the EPF fully empathised the profound challenges its members were facing, amplified by the uncertainty in their employment and financial prospects particularly during the MCO quarantine period and subsequent economic slowdown.

“The 1Q results are illustrative of the fact the world and how we live is now forever transformed.

“While we still do not know how long the pandemic will last, nor the full extent of the economic fallout, we believe the situation will eventually stabilise,” he said.

He said it is critical for the EPF to learn its lessons and adapt accordingly to 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.