KUALA LUMPUR: Malaysia should have diversified investments not only in the country but also most importantly, abroad to reap better yields, said the Employees Provident Fund (EPF).
EPF deputy chief executive officer of investment Datuk Mohamad Nasir Ab Latif said it is important for the pension fund manager not to “put all our eggs in one basket”.
EPF’s total assets investments are worth US$180 billion (RM754.11 billion), with the fund ranked 7th in the world.
Nasir said EPF’s current overseas investments in 40 countries amount to US$52.2 billion, representing only 29 per cent of its total investment assets.
“Foreign investments are a must for EPF. We garner between 11 per cent and 12 per cent annually for our total asset growth, which is between RM50 billion and RM60 billion,” he told the New Straits Times, Berita Harian and TV3 in an exclusive interview today.
Nasir said Malaysians should not be worried about EPF’s foreign investments, as it is better for the fund to have diversity when investing.
“For example, the Canada Pension Plan has more than 90 per cent of its total investments overseas. From our last experience during the 1997 Asian Financial Crisis, we had all of our investments in Malaysia. Most our assets and investments value plunged vigorously. We do not want this to ever happen again,” he explained.
Nasir pointed out that the country’s gross domestic product (GDP) growth is about five per cent, thus it is vital for EPF’s money to snowball vigorously with better investment opportunities abroad.
“It is unsafe for us to invest all our money in one place. If anything happens, it would affect everything. There would be no chance for growth if we continue to rely on investments in the local market. For example, in the local bourse, there are not many companies issuing initial public offerings,” he said.
He stressed that overseas investments would allow EPF to have wider opportunities with the potential of having investments for bigger assets.
“Investments abroad yield better returns, with less risk profile,” he said, adding that over the past three years, EPF’s assets in foreign countries and the returns contribution had been growing at a healthy pace.
He said it would be difficult for EPF to invest all of its money in Malaysia as the local market has limited investments opportunities.
“The bulk of our total funds (71 per cent) are still for local investments. The remaining 29 per cent is for foreign investments,” he said.
Nasir said EPF’s total foreign investments from 2014, 2015 and 2016 had been growing to 23 per cent, 25 per cent and 29 per cent, respectively.
However, EPF’s overall income contribution recorded 32 per cent (2014), 48 per cent (2015) and 39 per cent (2016,) respectively.
“Although investments abroad are less, the returns are substantial. If we did not invest overseas, it would mean that we are not acting responsibly for our members.
“We want to make sure that we can provide better returns for our members,” he said.
From the 29 per cent of EPF’s investments overseas, 17 per cent is derived from its investments in the United States, comprising various assets of classes including equity, real estate, infrastructure and fixed income.
“Foreign investments are a must for EPF to help us give more dividend payouts for our members,” he said, adding that most of EPF’s contribution not only come from dividend gains but also from capital and foreign exchange gains.
Nasir said EPF’s investment objective is to gain better returns, dividends and capital gains, spurred by its massive assets to secure substantial investments.
“For example, if we invest €200 million (RM1 billion) in Germany for a building, we can get yields between five per cent and six per cent,” he said.
EPF, he stressed, has a strict governance framework process before proceeding with its investments both locally and abroad.
“Before we invest in any country or form, we have various stages of strict governance framework. Firstly, we
have to do research on the viability and feasibility of a particular investment.
“We have to see the potential returns and risk of a project. It must match EPF’s requirements,” he said.
He added that any investments need to be approved through various departments including the management committee such as the chief executive and investments officials and risk management, to oversee the investments.
“Then, it (investment) needs to be vetted by the investment panel with professional officials such as employers and employees associations, before going through the final stage of approval from Bank Negara Malaysia and the Ministry of Finance,” he said.