Malaysia's EPF to increase private equity target

The $170bn Employees Provident Fund of Malaysia expects to increase its private equity allocation target up to 5% from 2%.

The Employees Provident Fund of Malaysia (EPF), Malaysia’s first pension fund, intends to increase its allocation to private equity to possibly 5 percent over the next five years from 2 percent, a spokeswoman for the firm told Private Equity International.

EPF will have no set allocation to domestic or international fund managers, she said, and will keep its investments opportunistic. However, the MYR 526 billion (€132 billion; $170 billion) fund has recently taken on three funds of funds managers – LGT Capital Partners, Goldman Sachs Asset Management and Hamilton Lane – to advise it on its overseas investments in developed markets.

In developing markets, especially Asia, EPF will continue to make both direct investments in companies and in GPs,

The increased allocation to private equity is driven by EPF’s new head of private markets, Mohamed Hafiz Kassim, according to the spokeswoman. He previously worked at Daiwa Capital and PricewaterhouseCoopers before joining EPF in 2010 and since then has been looking for ways to increase the fund’s private equity exposure.

Although EPF usually targets between 1 to 2 percent for private equity, it rarely meets that target because the fund is growing too quickly, she said. “It’s a bit hard to catch up with the growing assets of EPF. It grows at about 9 percent annually, so [increasing allotment to PE] is one of the ways we want to catch up.”

EPF tends to be risk-averse when it comes to choosing GPs, she said. Since it is a pension fund, EPF tends to shy away from venture capital or technology investments as well as first-time funds, unless they personally know the manager well. EPF must also be sensitive to scrutiny, and will not invest in GPs with alcohol or gambling investments, for example.

Even with the increased allocation, private equity will still be the smallest asset class in EPF’s portfolio. “We don’t have any office outside Malaysia, so we are still building our relationships with fund managers globally,” the spokeswoman said.

EPF only started investing in private equity recently, so very few of its private equity funds have produced returns yet. But EPF’s own research shows that private equity has generally outperformed public market investments, she added.