Malaysia’s Employees Provident Fund (EPF) has announced plans to ramp up its overseas exposure to almost a fifth of total investments by the end of this year.
As at March 31, overseas assets accounted for just under 14% of its RM488.5 billion ($154 billion) in AUM, or $21.5 billion. That was boosted in the first quarter of this year by $1.2 billion of investments into global equities and real estate.
Equities now make up 35% of EPF's portfolio and has increased 8% in absolute terms over the past year to stand at almost $55 billion. Loans and bonds account for 33% of the portfolio (up 12% year-on-year) and Malaysian government securities 25%. Property still languishes, at 0.36%.
But EPF’s chief executive, Azlan Zainol, reveals: “In addition to global equity holdings, we plan to step up our investments in overseas real estate and infrastructure deals as well as Islamic and conventional bonds… with an intention to gradually increase our overseas exposure to between 18% and 19% of our total investments by the year’s end.”
Just this week, property firm Goodman Group announced a tie-up with EPF to invest in logistics assets, beginning in Australia. Initial plans point to an Australian portfolio of A$400 million, comprising six stabilised logistics assets sourced from Goodman and its managed funds.
Talking about the deal, EPF’s deputy chief executive, Shahril Ridza Ridzuan, also stressed that the fund was intent on increasing its exposure to real estate and working with property groups around the world.
However, Azlan was also at pains to emphasise that EPF would be selective and cautious in its venture into the global marketplace and would only invest after detailed studies and in mandates and countries it had identified as appropriate for its risk-return profile.
“The move into international assets also does not mean that EPF is shifting domestic investments out of the country as our domestic assets in terms of absolute amount has and will continue to experience positive average growth of about 4% per annum.”
One local fund manager, who declined to be named, confirms that EPF is eagerly seeking to diversify internationally, with a preference for Asia over the West.
“EPF is seeing a net RM1.5 billion in subscriptions every month,” he tells AsianInvestor. “Its members are used to a relatively high return, and it is looking to invest in international markets it feels most comfortable with and might reduce constraints on external managers accordingly.”
EPF saw its net income for the first three months of 2012 increase 18.5% year-on-year to RM7.7 billion, primarily driven by profit-taking in equities with the FTSE Bursa Malaysia KLCI Index having risen 20% to March 30 from a low on September 26 last year.
The fund’s second biggest contributor to investment income for the quarter was loans and bonds. One of EPF’s major investments during the quarter was its subscription to the global sukuk issued by PLUS following the privatisation of PLUS Expressways last December.
Azlan adds: “We anticipate a consistent and stable net inflow of contributions to the tune of Rm4 billion per quarter to sustain in tandem with the growth of EPF membership.
“Diversifying our investment strategy globally has therefore become essential given the domestic constraints in terms of limited investment products and liquidity to trade in large volumes, with the home market simply being too small to absorb all our investments.”
Only last month the EPF revealed plans to intensify its investments into global equity and fixed income as part of its diversification strategy after a government mandate to increase its international investment to 23% of overall assets.
EPF made an additional $5.5 billion worth of investments in overseas investment mandates in 2011. Cumulatively, the total drawdown in non-ringgit investments as at the end of last year was about $17 billion.
By the end of last year the EPF had 13.15 million members and 487,664 employers registered.