Malaysia's $301 billion pension fund looks overseas for higher gains

KUALA LUMPUR (BLOOMBERG) – Malaysia’s largest pension fund is investing more overseas as it seeks to beat the 4 per cent to 5 per cent return it has been achieving.

“We will definitely aim for that,” Alizakri Alias, chief executive officer of the Employees Provident Fund (EPF), said in a Bloomberg TV interview with Haslinda Amin. “But I think you know as well as I do, times are extremely challenging.”

The EPF, whose assets rose 10.9 per cent last year to RM924.75 billion (S$301 billion), has been expanding its global portfolio to maintain high dividends for Malaysian workers in the face of limited opportunities onshore, he said.

“The rate of growth for our fund is outgrowing the rate of the economic growth of Malaysia,” Mr Alizakri said on Tuesday (June 30). “So whether we like it or not, we have to start looking overseas.”

The state fund currently has almost 30 per cent of its investments placed overseas.

Malaysia is teetering on the brink of a recession while the government faces risks of a credit ranking downgrade after S&P Global Ratings and Fitch Ratings lowered their outlook to negative. The World Bank cut its forecast for the economy to a 3.1 per cent contraction this year, from a 0.1 per cent decline, as the coronavirus pandemic and a nationwide lockdown curbed economic activity.

LOWEST DIVIDEND

Prime Minister Muhyiddin Yassin has since unveiled RM295 billion of stimulus packages to save jobs and shore up growth. The measures included an automatic reduction of people’s contributions to EPF to 7 per cent, from 11 per cent, to help boost consumer spending.

Last year, the Kuala Lumpur-based fund declared its lowest dividend since 2008 at 5.45 per cent, with its Syariah-compliant fund returning 5 per cent. That compares to the 6 per cent slide in the benchmark FTSE Bursa Malaysia KLCI Index in 2019.

“We have been outperforming what a pension fund should normally be returning,” said Mr Alizakri. EPF’s gains have exceeded its internal target for 2 per cent to 2.5 per cent average return over three years, he added.

EPF will also invest as much as possible into Syariah-compliant assets as well as environmentally and socially responsible assets, even if the supply remains limited, he said. These assets fit the fund’s profile as they are less volatile and focused more on fundamentals and long-term sustainability, he added.

“This is the best time to be in a pension fund, to tell you the truth,” Mr Alizakri said. “Those sister funds of mine who are in the shorter term, wow, I wouldn’t want to be in your shoes because there are so much uncertainties moving forward.”

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