On September 13, Prime Minister Datuk Seri Najib Razak announced that the Employees Provident Fund (EPF) and Khazanah Nasional Bhd planned to expand their investments in the US.
The backdrop: his diplomatic trip to meet President Donald Trump.
Citing economic gain, Najib said EPF was expected to invest between US$3 billion (RM12.6 billion) and US$4 billion.
“They (EPF) have got big sums of capital to be exported. They have invested close to US$7 billion in terms of equity in the US and they intend to invest an additional US$3 billion to US$4 billion to support your infrastructure re-development,” he said.
Typically the announcement was met with swift backlash from social media users and opposition politicians.
PKR leaders Datuk Seri Azmin Ali and Rafizi Ramli said the investments were a form of capital flight and could be better kept in the country.
Najib responded that such spin of facts gave the impression that there were no returns while the truth was that much more money was brought back to the country.
So as the debate rages on, we decided to get to the heart of the matter. Here are four things you need to know about EPF and its overseas investments:
1) The EPF has the right to invest abroad
Before we start jumping the gun – that the EPF is not bound by law – let’s start with the fact that the fund’s activities is subject to law i.e. the Employees Provident Fund Act 1991.
It is an act “to provide for the law relating to a scheme of savings for employees’ retirement and the management of the savings for the retirement purposes and for matters incidental thereto”.
And EPF’s investment activities fall under the purview of Section 26.
In a reply to English-language daily The Star, the fund cited this section of the act and said it practisced a disciplined and prudent investment process.
An Investment Panel approves all investment decisions and this panel consists of members appointed based on extensive knowledge and professional experience in financial matters.
Here’s how the accountability structure looks like:
According to the EPF, the Investment Panel determines and approves investment activities in line with existing guidelines, policies on risk control and asset allocation.
Members on the panel consist of representatives from EPF, Bank Negara Malaysia, independent industry experts and the government.
2) There are checks and balances
Aside from a quarterly audit process done internally, the Auditor-General is also tasked to keep track of EPF investments.
For example, in 2014, the then Auditor-General Tan Sri Ambrin Buang urged the Public Accounts Committee to check the EPF’s growing investments overseas.
Ambrin was concerned after noting that the fund chalked up RM6.46 billion in real estate investments abroad last year. This despite the healthy returns.
Also, EPF’s overall asset position and performance are announced quarterly and accounts reported in accordance with global accounting standards, FRS 139.
All audited accounts are tabled in Parliament for approval and is subject to scrutiny by PAC. This means all investments being pumped into overseas institutions are accounted for and tracked.
In fact, the fund issued a statement right after Najib’s announcement, assuring Malaysians that all investment proposals are assessed and go through a robust due diligence process.
3) You can keep track of the EPF’s performances
The fund releases its quarterly income statements online under its News & Highlights section. This is, by far, your best bet in keeping track of EPF investments.
For example, last week the fund reported an increase in quarterly investment income to RM11.51 billion for the second quarter ended June 30, 2017, which was a year-on-year increase of 36.36% from RM8.44 billion during the same period.
However, there is no exact information available on its official website on the overseas institutions the fund invests in.
Checks with EPF directed us to the communication affairs department and we were told to submit a written request regarding our query on overseas institutions.
Still, there’s some information available in their media statement. Citing their latest quarterly income statement, the fund said its overseas investments – which account for 29% of its total investment asset – contributed to 32.5% of the total investment income during the period under review.
Aside from this, members can also download and read their annual reports. So, in the latest Annual Report 2016, it states that the EPF’s diversified investments allowed it to take profits from other markets.
As at December 31, 2016, the EPF’s foreign investments, which constituted 29% of total assets under management, contributed 39% of the total RM46.56 billion gross investment income.
Actually, even the fund’s net impairment are also public knowledge. For example, in February 2017, EPF recognised net impairment amounting to RM8.17 billion, compared with RM3 billion in 2015. This is due to weaker equities market and a slump in crude oil prices.
4) The overseas investments does benefit its members
So over the past three years, the EPF overseas portfolio has recorded double digit annualised returns of 11.1%, boosting the overall return by 1.39%.
According to EPF chief Shahril Ridza Ridzuan, 29% of the EPF portfolio invested overseas remained “a significant revenue driver” for the portfolio.
He said strong gains on overseas holdings, at an annualised 11.1% for the three years through June 30, helped the portfolio more than overcome a 3% appreciation of the ringgit versus the dollar during the period.
So do you need to be worried about your EPF savings?
With all the information available, the answer is no. Sure, your dividends might be affected as investments are after all a risky affair.
But to see some returns on your savings, the EPF has to look abroad to diversify its risk. The good news is there’s some measure or accountability by way of the EPF Act and the fund’s duty to publicly disclose its finances on a quarterly basis.
If you are enticed by the US economy, then you can try opting for an EPF-approved unit trust that invests a certain portion into US-based assets.
One such fund is the Eastspring Investment Global Leaders MY Fund which invest 54.28% of assets into the US.
| Period | 3 mth | 6 mth | 1 yr | 2 yr | 3 yr | 5 yr | 10 yr |
|---|---|---|---|---|---|---|---|
| Bid to Bid Returns (%) - RM | 1.06 | 1.82 | 16.85 | 10.35 | 13.13 | 14.20 | 2.58 |
**Source: Fundsupermart
If the EPF’s investment adventures still nag at your conscience, then you can try saving in a Private Retirement Scheme (PRS) as well as in shares, unit trusts, REITs and other investment instruments to spread your risk.
Because at the end of the day, forced savings is better than no savings at all. And it’s the lack of savings that’s the larger reality we’ll have to contend with.
