Shahril Ridza Ridzuan, CEO of Malaysia’s 684.5 billion ringgit ($174.8 billion) Employees Provident Fund, said Tuesday his investment team remains hopeful the Kuala Lumpur-based retirement fund can achieve its real-return target this year of 2 percentage points above inflation despite an “extremely difficult” first quarter.
Speaking at a news conference on the release of the EPF’s latest annual report, Mr. Shahril credited the retirement fund’s diversification push into overseas assets — which roughly quadrupled over the past six years to 25% of the portfolio — for the record gross investment income of 44.2 billion ringgit the EPF reported for 2015, despite difficult market conditions.
That 25% combined allocation to foreign equities, bonds, real estate and infrastructure contributed 21.4 billion ringgit in gross investment income, or 48% of the total, said Mohamad Nasir Bin AB Latif, the fund’s deputy CEO for investment, at the same news conference Tuesday.
Without those foreign investments, the EPF wouldn’t have been able to credit the accounts of the national defined contribution plan’s 14.6 million members with the 6.4% dividend payout announced in February, the second-highest rate over the past 17 years, Mr. Nasir said.
The annual report showed that 11.2 billion ringgit of that 21.4 billion ringgit in investment income from the EPF’s foreign investments came from foreign exchange-related gains, reflecting the more than 20% depreciation of the ringgit against the dollar during the year.
Mr. Shahril said that in 2016, there has been some reversal of that ringgit weakening of the previous year, with the Malaysian currency rebounding almost 10% against the dollar. A modest rebound in global oil prices has contributed to that recovery, reflecting Malaysia’s status as an oil producer.
Asked how the EPF has responded to Prime Minister Najib Razak’s public call to government-linked asset owners in September to take profits on a portion of their overseas holdings and invest the proceeds at home as a means of providing a boost to the domestic economy, Mr. Shahril instead noted that with strong net inflows — at more than $3.5 billion in 2015 — the EPF has sufficient liquidity to continue making large investments at home while diversifying abroad as well.
Mr. Shahril said the EPF continues to look for long-term investments at home in areas such as infrastructure — including power plants, utilities and toll roads — which offer inflation-adjusted returns.
Mr. Nasir likewise highlighted real estate and infrastructure, which accounted for 3% of the EPF’s portfolio at the end of 2015, as a market segment his investment team “wants to grow aggressively,” even as due diligence requirements ensure a slower pace.
Meanwhile, Mr. Shahril said the EPF isn’t overly concerned about its 200 million ringgit exposure to the bonds of 1Malaysia Development Berhad, a strategic development company that’s been a lightning rod for controversy in Malaysia over the past year, most recently for missing a $50 million interest payment on some of its outstanding bonds.
Mr. Shahril said the trustees of the bonds the EPF holds haven’t reached out to bondholders yet with any information regarding whether there’s an issue of cross defaults affecting other 1MDB bonds. In any case, the bonds the EPF holds are “fully government guaranteed,” he said.
