KUALA LUMPUR — The Employees Provident Fund (EPF) will continue to grow its overseas investments while diversifying further into private market assets such as real estate and infrastructure, in order to get better yields, chief executive officer Datuk Shahril Ridza Ridzuan said.
“Our key focus in 2017 remains in building our pipeline for private market investments, mainly in infrastructure, property and private equity because we feel that they provide us with better inflation-adjusted returns .
“This year we will be deploying more assets in that space, while still investing in our traditional fixed income and public equity spaces but those tend to be more market-driven,” Shahril said at a briefing here yesterday on its 2016 dividend of 5.7%.
Of RM46.6 billion gross investment income recorded in 2016, RM2.5 billion (5%) was contributed by real estate and infrastructure, while fixed income came in at RM16.2 billion (35%) and equity holdings at RM26.9 billion (58%).
The real estate and infrastructure asset class saw the highest growth, up 46% from RM1.7 billion income recorded in 2015, while both equities and fixed income assets saw incomes rise 3.2% and 3.7%.
Almost 90% of the private market assets EPF that invested in are in Europe or other developed countries such as US, Australia and Japan, with some interest in China as well.
“We choose to invest in markets where there is regulatory stability as well as much more predictability in cash flow generation,” the EPF boss explained.
Overall, foreign assets account for 29% of the fund’s investments of RM731.1 billion as at end-December 2016. Nonetheless, foreign investments again acted as the bulwark for income, contributing 39% or RM18.2 billion to EPF’s gross investment income for last year.
Foreign investments also held up income last year, accounting for 48% of EPF’s gross investments income of RM44.2 billion seen in 2015.
“Over 29% of our assets are overseas, bringing it close to our 30% threshold, which we will review at the end of our three-year cycle.
“Even if we keep the cap at 30%, we still have to increase the amount invested overseas by roughly another 10% to match the yearly growth in assets under management,” Shahril said.
On EPF’s sub-5% stake in Shell Refining Company (Federation of Malaya) Bhd (SRC), he said the takeover offer price of RM1.92 per offer share by Malaysia Hengyuan International Ltd (MHIL) is “not widely attractive.”
On Jan 31, 2017 most SRC shareholders of heeded independent adviser AmInvestment Bank’s advice to reject MHIL’s offer. AmInvestment Bank said the offer was not fair as it represented a discount from 53.8% to 59.6% over the range of fair value per share based on discounted cash flow valuation of between RM4.16 and RM4.75 per share.
Last year, EPF recorded its largest impairment at RM8.17 billion, from RM3.07 billion in 2015, to reflect lower equity prices, particularly in the local banking and oil sector and both local and foreign oil and gas stocks.