‘Fund needs to look beyond Malaysia to secure better returns’

KUALA LUMPUR: The Employees Provident Fund (EPF) should have a balanced returns and asset allocation to generate good returns for its investors, said analysts.

They said there was a case for EPF to consider boosting investments in the United States.

MIDF Research deputy head Mohd Redza Abdul Rahman said to secure better returns, EPF would need to look beyond Malaysia.

“Increasingly, pension funds have been looking beyond the traditional fixed-income and stock asset classes,” Redza told NST Business yesterday.

He added that many fund managers had ventured into private equity investments, including infrastructure and property development projects.

“Generally, fund managers have to look outside to find better returns at the level of risk profile allowed by their mandate,” he said.

Redza was responding to Prime Minister Datuk Seri Najib Razak’s announcement during his recent visit to the US that the fund was looking at investing further in the world’s biggest economy.

Najib said EPF had invested about US$7 billion (RM29.35 billion) in the US and planned to spend another US$3 billion to US$4 billion on infrastructure development in the country.

EPF, in its statement yesterday, said the US was one of the key markets within its investment universe.

The fund also said it would scrutinise foreign investment opportunities that fit its risk-return profile.

This, it added, was in line with its long-term overseas diversification programme.

Redza said EPF would conduct extensive analyses on any potential investments before making the decision to invest.

“For example, investments in office buildings that generate good rental yields that are higher than the dividend payout commitment would be something worth considering.”

Redza said infrastructure projects such as toll roads and power generation assets would be another avenue to diversify investments into other asset classes, especially those with attractive cash flow projections and acceptable risk profile.

Although some other asset classes might be risky, but with a good asset allocation model, he believed that EPF would be able to find a balance between the risk and returns.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the US economy had been growing at a healthy clip while equity prices had been recording multiple highs during the year. “There is an investment case for EPF to consider (investing further in the US) from a macroeconomic standpoint.

“We also understand that infrastructure spending is an important growth agenda in the US, given that its infrastructure is rather old and in dire need for reinvestment,” he said.

Afzanizam said there was an opportunity to invest in the infrastructure space as an institutional investor.

He added that EPF also had to constantly diversify its portfolio in order to reduce the overall portfolio risks and that included diversification in terms of geographical location.