Malaysia’s Employees Provident Fund (EPF) will continue increasing its foreign asset exposure after posting gross investment income of RM60.98 billion (around 6%) for 2020 despite the challenge of Covid-19, outgoing chief Alizakri Alias said on Saturday (February 27).

This result helped EPF’s assets under management grow 7.9% last year to hit RM1.02 trillion ($251.48 billion), driven by strong performance from its foreign assets, private investments and external asset managers, it revealed in an announcement on Saturday.

It came after the fund said on Friday it would launch a $600 million sharia-compliant private equity separately managed account (SMA) fund.

Alizakri Alias

EPF’s latest figures appear to vindicate the fund’s rapid of foreign and alternative assets in recent years. As of December 2020, 33% of EPF’s investment assets were overseas, up from 30.3% the year before and 26.7% at the end of 2018.

And last year foreign assets returned 8.64%, as against above the 5.02% yielded by domestic assets.

INTERNATIONAL AMBITIONS

Alias said EPF’s offshore exposure would continue to rise, in line with its asset allocation strategy to maintain a “healthy split” between international and domestic investments.

The fund’s push to invest more into foreign and alternative assets has been underway since the time of Alias’s predecessor, Shahril Ridza Ridzuan, and reflect a plan to expand its investment capabilities overseas.

In early 2019, chairman Samsudin Osman said EPF aimed to raise its exposure to property and infrastructure, then barely over 2% of its portfolio but now representing about 5%.

EPF is also expanding its alternatives exposure with its sharia-compliant private equity fund launch. It claims be the world’s first institutional investor to launch a sharia PE direct and co-investment SMA fund. 

The fund will be split into three $200 million SMAs, to be managed by BlackRock, HarbourVest Partners and Partners Group. They have a global mandate focused on direct and co-investments into growth and buyout deals.

In a similar push for diversification, Malaysian state-linked fund manager Permodalan Nasional Berhad (PNB) last year embarked on a drive to treble its offshore allocation to 30% by 2022 from 8.5% in 2019 and expand its range of investments.

ASSET CONCENTRATION

Both EPF’s and, to an even greater degree, PNB’s portfolios are very concentrated on domestic assets, so overseas diversification makes sense from a risk and return perspective – even if they do retain a mandate to support their home markets. Ultimately they are outgrowing their local asset pool.

EPF has RM655 billion invested in Malaysia, owning at least 10% of all stocks, 80% of government securities and around 26% of private borrowings and non-government bonds in the country.

As of June 30 its top equity investments included domestic banks such as Malaysia Building Society (a 64.48% stake), RHB (42.51%) and CIMB Group (16.30%), as well as resources and telecommunications entities. EPF owns 17.03% of state electricity company Tenaga Nasional, from which its new CEO, Amir Hamzah Azizan, joined on March 1.

EPF announced last month that Alias would be stepping down after two-and-a-years at the helm. No reasons were given for his departure, and a spokesperson for EPF declined to comment when approached by AsianInvestor.

Besides remaining on the board of several Malaysian conglomerates, Alias’s LinkedIn profile states his current position as “Chilling for now”.