Malaysia’s $200 billion Employees Provident Fund (EPF) is keen to continue increasing its investments in North Asia, where it sees strong growth potential, its chief executive said on Wednesday.

While developed markets have been the pension fund’s natural overseas target for investments, in recent times the pension fund's attention has shifted to North Asia, primarily through real estate and private equity, he said.

“In the past two years we have raised our exposure to North Asia and China, in particular,” Shahril Ridza Ridzuan said at an investment event in Hong Kong.

Afterwards, Ridzuan told AsianInvestor that this increase in investments, ranging between one and two percentage points of EPF's total investment portfolio, was brought about through a reduction in overall developed market exposure. 

Ridzuan also told AsianInvestor that the pension fund continues to actively monitor investment opportunities in markets such as China, South Korea and Japan.

In contrast, it has been paring its exposure to US publicly listed stocks, which put on around 20% in 2017, leaving valuations looking quite stretched. The US (both private and public investments) accounts for 17% of EPF’s overseas investments – its largest single-market exposure. 

Overseas investments overall accounted for 28% of its total investment assets at the end of 2017 and powered about 41% of its gross investment income of RM53.1 billion ($13.7 billion) for the year, according to a February statement. The overseas portfolio delivered annualised returns of 10.83%, 11.14%, and 10.43% over one-, three-, and five-year periods, respectively, the update said.

EPF has previously said that it aims to increase the overseas allocation of its portfolio to 32% by 2019.

In February, chairman Tan Sri Samsudin Osman noted that the need to generate consistent and sustainable returns was partly the reason driving EPF into overseas markets.

It is also part of a broader trend among income-challenged Asian pension funds as they hunt for higher yields, attempt to diversify away from home markets, and seek out alternative investments.

STOCKING UP ON GROWTH

The interest in North Asia is likely to continue over the next decade as China’s growing middle-class and increased domestic consumption fuel opportunities across a range of sectors, Ridzuan said.

Opportunities in logistics, such as warehousing and distribution centres, have been of particular interest. “We are expanding our footprint [in real estate] in China, South Korea and Japan,” he said at the Bloomberg-organised event.

There are fundamental growth drivers for warehousing and logistics in markets such as China, which are linked to the booming e-commerce industry and indirectly to the retail sector, Chris Chow, Hong Kong–based managing director at real estate specialist LaSalle Investment Management, told AsianInvestor.

That sentiment was confirmed by an Asia Pacific Investor Intentions 2018 survey released by CBRE on March 29. It noted that the industrial and logistics sector continues to see an increase in investor interest because of the growth in e-commerce and the development of modern logistics facilities into an institutional investment product.

Around 82% of the survey’s respondents are based in Asia, while about 13% comprised sovereign wealth funds, insurance companies, pension funds and family offices.

For more insights on investing in Malaysia, AsianInvestor is hosting its Malaysia Global Investment Forum in Kuala Lumpur on June 26. For more details, visit the website or contact Terry Rayner via email or on +852 31751963.