Malaysia’s $216 Billion Fund Looks Overseas For Higher Gains

(Bloomberg) -- Malaysia’s largest pension fund is investing more overseas as it seeks to beat the 4% to 5% return it has been achieving.

“We will definitely aim for that,” Chief Executive Officer Alizakri Alias said in a Bloomberg TV interview with Haslinda Amin. “But I think you know as well as I do, times are extremely challenging.”

The Employees Provident Fund with about $216 billion in assets has been expanding its global portfolio to maintain high dividends for Malaysian workers in the face of limited opportunities onshore, he said.

“The rate of growth for our fund is outgrowing the rate of the economic growth of Malaysia,” Alizakri said on Tuesday. “So whether we like it or not, we have to start looking overseas.”

The state fund currently has almost 30% of its investments placed overseas. Its assets rose 10.9% last year to 924.75 billion ringgit ($216 billion) as of the end of 2019.

Malaysia is teetering on the brink of a recession while the government faces risks of a credit ranking downgrade after S&P Global Ratings and Fitch Ratings lowered their outlook to negative. The World Bank cut its forecast for the economy to a 3.1% contraction this year, from a 0.1% decline, as the coronavirus pandemic and a nationwide lockdown curbed economic activity.

Lowest Dividend

Prime Minister Muhyiddin Yassin has since unveiled 295 billion ringgit of stimulus packages to save jobs and shore up growth. The measures included an automatic reduction of people’s contributions to EPF to 7%, from 11%, to help boost consumer spending.

Last year, the Kuala Lumpur-based fund declared its lowest dividend since 2008 at 5.45%, with its Shariah-compliant fund returning 5%. That compares to the 6% slide in the benchmark FTSE Bursa Malaysia KLCI Index in 2019.

“We have been outperforming what a pension fund should normally be returning,” he said. EPF’s gains have exceeded its internal target for 2% to 2.5% average return over three years, he added.

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EPF will also invest as much as possible into Shariah-compliant assets as well as environmentally and socially responsible assets, even if the supply remains limited, he said. These assets fit the fund’s profile as they are less volatile and focused more on fundamentals and long-term sustainability, he added.

“This is the best time to be in a pension fund, to tell you the truth,” Alizakri said. “Those sister funds of mine who are in the shorter term, wow, I wouldn’t want to be in your shoes because there are so much uncertainties moving forward.”

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