Malaysia’s Employees Pension Fund posted higher returns last year than in 2014 despite high volatility in its local market and a weakening ringgit, and will expand its alternative asset portfolio including at least doubling its private equity allocation.

The dividend (effectively, EPF's returns) for 2015 was 6.4% (4.3% in real terms) and the rolling three-year real dividend 4.05%. The 2014 numbers for real dividend and three-year rolling were 3.59% and 4.11%, respectively. 

Moreover, the RM675 billion ($161 billion) state fund reported RM44.23 billion in gross income for the year to end-December, a 13.18% increase on 2014.

Chief executive Shahril Ridza Ridzuan said the performance had exceeded market expectations, despite the economic downturn. He attributed this to diversification across asset classes, countries and currencies.

The fund will continue its global diversification and will be expanding its investments into real estate and infrastructure. Ridzuan told AsianInvestor the fund will increase its exposure to private equity from around 4% to between 8% and 10% in the next three to five years. He said the extent of its exposure would depend on performance across all markets and the availability of suitable investments.

Equities remained the leading contributor to EPF's investment income in 2015, with foreign investments contributing 48% of total gross investment income, buoyed by a 20%-plus fall in the ringgit against the dollar. Malaysian fixed-income exposure contributed 35.4% of gross investment income.

“We decided early in 2015 to take profits when we could; this proved to be the right strategy,” said Ridzuan. The fund also found opportunities to invest in the second half of the year, to put some money back into emerging markets.

However, with the start to 2016 in markets being so bad, he conceded the fund might struggle to match last year’s performance this year. “We remain extremely cautious, and while we can’t tell what will happen in the next nine months, we expect our global diversification will help us.”

With 43% of EPF’s exposure in Asia (excluding Australia), the remainder is split between North America (25%), Europe (23%), Australia (5%) and other geographies (4%).

Meanwhile, Malaysia's parliament this year approved amendments to the EPF Act 1991, allowing conversion of RM100 billion to RM120 billion of the total portfolio to be fully sharia-compliant. Scheme members will be offered the opportunity to have their pension assets managed on a sharia basis. The change will take effect in 2017, and plans for the rollout will be announced in mid-2016.