Malaysian pension fund braces for tough year ahead

The Employees Provident Fund faced a difficult start in 2016, with investment income for the first quarter falling 36 percent, compared with a year ago.

Malaysia’s Employees Provident Fund (EPF) is bracing for a difficult year in global and domestic markets given the ongoing investment climate and poor corporate results, EPF chief executive officer Shahril Ridza Ridzuan said in a statement.

The EPF’s income for the first quarter of 2016 dropped 36 percent from a year before, from MYR 10.6 billion ($2.6 billion; €2.3 billion) in Q1 2015 to MYR 6.8 billion Q1 2016, reflecting weak equity markets globally and lower returns from its global investments.

In contrast, alternatives, including real estate and infrastructure made up 3.5 percent of its total investment assets and generated total income of MYR 377.8 million for the quarter, up from MYR 251.5 million from the same period in 2015, according to EPF.

Earlier this year, the pension fund announced plans to ramp up its allocation to alternatives, from 5 percent to 10 percent of total fund size in the next five to seven years, as reported by Private Equity International.

Its current exposure to private equity stands at two percent, while four percent is allocated to alternative investments including infrastructure and real estate, with real estate being the fastest growing part of its business.

The pension fund has invested in 45 private equity vehicles which include venture capital, buyout and expansion capital funds. It has committed capital to funds managed by Actis, Aureos Capital, Navis Capital Partners, Northstar Pacific Capital and CIMB Group, according to PEI Research & Analytics.

Ridzuan said the current economic condition presents opportunities for the EPF to rebalance its portfolios and simultaneously increase exposure to inflation-linked asset classes, including real estate and infrastructure.

Equities, which made up 41.4 percent of EPF’s total investment assets, contributed MYR 2.5 billon; Malaysian government securities generated MYR 1.9 billion; loans and bonds recorded $1.9 billion; and money markets contributed MYR 110.3 million.

Meanwhile, its contribution to global assets fell to about 22 percent from 47 percent a year earlier, due to lower capital and foreign exchange gains, EPF said.

The fund’s total assets came to MYR 681.7 billion as of March 2016.