Azlan sees more investments abroad

The Edge Malaysia, April 16, 2013

The Employees Provident Fund (EPF), backed by RM527 billion as at the end of last year, may need to eventually lift the cap on its overseas investments to 40% of total funds to continue providing high returns.

As at the end of last year, the EPF only had 15.7% of its funds invested overseas, which is still some distance from the current permissible level of overseas investments of up to 23% of its total funds. 

Outgoing CEO Tan Sri Azlan Zainol said the retirement fund will likely need to seek the government’s approval to raise the cap to at least 30% within the next five years. 

“We’re adding RM40 billion to our fund every year … so [raising the cap to] 30% to 40% is an eventuality,” Azlan told The Edge Financial Daily in an interview yesterday. He was discussing the EPF’s challenge to keep up returns — the fund is expected to reach RM700 billion within the next five years. 

“When the EPF’s asset size reaches RM1 trillion, then 60% of that for the local market is already RM600 million [more than the current total investment asset base]. Our market can take RM400 million, but can it take RM600 million?

“Maybe it can, but whether [the] returns can be as high is another question altogether,” said Azlan just hours before he made his final round as EPF’s longest serving CEO. 

He clocked off at 4.45pm — 12 years after signing in as CEO on April 16, 2001. Datuk Shahril Ridza Ridzuan, Azlan’s deputy, will take-over the helm at EPF. 

Azlan leaves on a high note with the EPF having declared a dividend of 6.15% for the financial year ended Dec 31, 2012 in March this year. 

It is the highest in a decade and came as the provident fund chalked up a RM27.45 billion payout on the back of a 13.9% growth in gross income to RM31.02 billion. The EPF needed RM4.46 billion to pay for every 1% of dividend in 2012, up from RM4.08 billion needed to do the same in 2011. 

And the amount needed to fulfil its dividend obligation is expected to continue rising by 8% to 9% a year going by the growth size of the fund, according to EPF’s calculations. 

Azlan was quick to add that the need to raise the cap on overseas investments will not only be necessary to sustain the high returns but it will also be a move that would ensure the EPF does not crowd out other players in the local market.  

Moving more assets abroad also spreads risk over a more diversified portfolio.  

For now, the 63-year old Azlan said EPF’s aim was to make sure returns of at least 200 basis points above prevailing inflation rates — translating to 5% to 5.5% in annual returns currently — are sustainable. 

“I think [the EPF] should be able to sustain 5% to 5.5% in returns a year on what we call normal business. Certainly, every year, we hope to deliver something extra. Last year, we had PLUS [Expressways Bhd privatisation and restructuring], this year hopefully we have something extra as well.” 

On a personal basis, Azlan is looking forward to not having to brace rush hour traffic. “I’m not retiring, just switching to a slower work pace. I believe we should give younger people a chance. 

“ There are many young, capable, energetic people between the age of 45 and 60 in Malaysia and people my age should be taking [on] more of an advisory role to allow the young people to step up,” said Azlan, who will continue to be chairman of RHB Investment Bank Bhd and MALAYSIAN RESOURCES CORP 

The former managing director at AmBank Bhd before joining EPF in 2001 said he has been approached to take on other board responsibilities and may consider accepting two or three more where he feels he is able to contribute. 

For now, he would only say he is not the new chairman of the Minority Shareholder Watchdog Group. 

As his parting gift from the EPF, Azlan asked for something every other member would agree to: “After today, I’m also just an ordinary EPF member like everyone else, I’ll be depending on the EPF for retirement days as well … so [a] 7% dividend would be nice,” Azlan said with a quiet smile.