Employees Provident Fund, Malaysia’s flagship $200 billion public pension fund, is understood to be working on expanding its global investment footprint, including considering setting up an office in the US.

Putting more internal investment professionals on the ground looks to be a key part of its strategy, as EPF sets about lifting its exposure to overseas alternatives as a proportion of its overall portfolio. 

RM117.56 billion ($28.55 billion) of the fund's investment assets were outsourced to external managers as of the end of 2018. But that was an increase of only 2.6% on the previous year after a 17.7% jump in 2016. As a share of total investment assets it also represented a slight drop.

One key reason for that could be EPF’s growing in-house investment capabilities in overseas alternatives, according to one Hong Kong-based adviser familiar with the fund. 

EPF, which manages the compulsory retirement savings of private-sector workers in Malaysia, had RM833.76 billion in assets under management as of end-2018. According to a spokeswoman, it has a roster of 15 external fund managers it uses across equity and fixed income.

Speaking on condition of anonymity, the adviser believes EPF has the potential to become a more noticeable direct actor in the global alternatives space, dubbing it a “silent assassin” in the making.

Having an office in the US to supplement its London office would help the fund research and monitor investments and managers in this space. But it is awaiting more favourable tax arrangements between Malaysia and the US before finalising its plans, according to the adviser. 

The likes of South Korea's National Pension Service, China Investment Corporation and China's State Administration of Foreign Exchange already have branches in New York. San Francisco is also a popular US location for Asian asset owners to establish a presence, with a view to making technology investments – those to have done so include Malaysian state fund Khazanah and Singapore's GIC and Temasek.

An EPF spokeswoman said the fund could not immediately provide immediate comment on its plans.

Samsudin Osman

“[EPF is] very smart and have a well-established local office in London,” the Hong Kong-based adviser said. “[It] is not as well-known globally as other Asian actors like China Investment Corporation or South Korea’s National Pension Service [NPS], but they are up-and-coming for sure.”

The annual report states: “It is EPF’s long-term and forward-looking strategy to continuously increase our exposure in this asset clas."

That the fund is intent on increasing its foreign property and infrastructure exposure was made clear to AsianInvestor by its chairman, Samsudin Osman, in February – and by its Strategic Asset Allocation plan for 2017-2019. The 2017 annual report specifies a median allocation target of 10% for real estate and infrastructure, double its current 5% (with around 50% in bonds, 39% in equities, 6% in money markets). 

EPF therefore has some way to go to meet this allocation objective, but it is getting there. According to property data provider Real Capital Analytics, the fund made real estate investments of $4 billion and divestments of $1.6 billion from 2014 through 2018.

The fund also aims to increase its 2% allocation to private equity (bucketed in its equities portfolio) to more than 3% over the next 10 years. 

The Hong Kong-based adviser said he would not be surprised if EPF soon starts following an alternatives strategy that is much more proactive and less controlled from its Kuala Lumpur headquarters, much like NPS.

The Seoul-based public pension fund has offices in Singapore, London and New York to help source alternative investments and close deals more swiftly. In 2018, NPS saw its alternatives portfolio make an annualised return of 11.8%, offsetting a weaker performance in its other asset classes.

Raising allocations and building up capabilities in alternatives, particularly private market assets, is a common current theme among institutional investors. Two large exponents of this are Japan Post Bank and Ontario Teachers' Pension Plan, with the latter targeting more overseas offices to that end.

EXTERNAL STRENGTHS 

Beyond alternatives, though, there is every indication EPF will continue to lean on external managers for its fixed income and equity allocations.

“As the EPF’s fund size grows, we will continue to outsource a portion of our funds to external fund managers as part of our diversification programme and to better manage the performance of our assets,” Osman said in a press release late last month to coincide with the EPF External Fund Managers Annual Awards 2019.

Starting this year, the release added, EPF’s newly formed external fund managers department will streamline the monitoring of external fund management “to tap into external fund managers’ specialised range of knowledge, skill sets and exposure in order to deliver sustainable, value-added returns over the long run".

“EPF outsources funds to external fund managers who share our long-term investment view and that complements our own in-house expertise in investment strategies and markets,” the spokeswoman told AsianInvestor. “The selection process involves conducting thorough due diligence on the external fund managers by EPF’s internal team as well as by an independent investment consultant.”