Malaysia’s $200 billion Employees Provident Fund (EPF) wants to increase the amount it invests overseas over the coming year but with a slight twist -- it wants more of that allocation to sit with private assets, according to its chief executive.

Speaking at AsianInvestor’s Malaysia Global Investment Forum in Kuala Lumpur last week, Shahril Ridza Ridzuan did not quantify just how much the allocation is expected to change.

But he left no doubt about the general direction, dovetailing with comments made in April by his chairman Tan Sri Samsudin Osman, which emphasised the fund's desire to continue investing more in alternative investments.

“[We are] slightly below where we should be ... we think it should be between 30% and 34% at this point in time,” Ridzuan said. “We hope to increase that exposure [to overseas investments] over the next year, but we do have to balance that in terms of where the ringgit sits.”

Overseas investments (private and public) have played an important role in generating EPF’s investment income. They accounted for 27.3% of the pension fund’s total investment assets at the end of March 2018 and accounted for 33.6% of the total investment income during the quarter, according to a results statement issued on June 1.

In April, Ridzuan said EPF had been increasing investments in North Asia, where it sees strong growth potential, and was continuing to monitor investment opportunities in Japan, China and Korea.

During a panel discussion, Ridzuan said the pension fund had invested in 30 markets across various asset classes and strategies.

“While we are big on active management of equities, we have started to branch out into quant management and more passive strategies. Given our size, we think it gives us the ability to deploy assets more efficiently,” he told delegates at the forum.

Equities (public and private) accounted for 41.6% of EPF’s total investment assets at the end of March and 61.6% of total investment income in the first quarter, the results statement shows.

Around 50.5% of EPF’s total investment assets were in fixed income instruments (public and private) and brought in 37% of quarterly investment income.

REAL ESTATE VIEWS

Elsewhere, the fund's real estate and infrastructure investments combined recorded a loss of RM107.38 million ($26.5 million) during the January-March quarter as a weaker US dollar dragged on ringgit valuations, the results statement said.

“The negative investment income recorded for the [combined] asset class is, however, expected to be offset by [the] inflow of investment income in coming quarters,” EPF said.

Ridzuan added that infrastructure investments had performed well from a risk-adjusted point of view for the last 10 years.

When it came to property, he also said EPF preferred to invest in developed markets rather than locally. 

"To be honest, the Malaysian market has been pretty poor and we have not done a deal for a good few years,” he said.

He said the pension fund had made some real estate investments in the UK and Europe after the global financial crisis, when assets were available at very good prices. The fund exited some of these investments two or three years ago, taking advantage of yield compression as demand recovered, he added.

For all that, investing in property carries some political risks because of the way they can attract undue attention in Malaysia.

“You buy one building in the UK for £1 million ($1.32 million) and it will be noticed. [But] we probably do more in terms of volume in a single day of trading public equities or bonds,” he said. "For a fund that has to manage public perception, real estate has a high-risk perception relative to other assets – that is one thing we have learnt.”

Investing in alternative assets, including private equity, also requires greater scale. "It requires a lot more manpower than what you would have for public equities or bond trading, especially given that information flow is more limited,” he said at the panel discussion. “A strong [team] structure allows you to do the required due diligence [on such investments].”

In addition, it also helps to have a strong corporate finance team to handle tax-related and other issues that can crop up when a pension fund invests in overseas markets, he added.