At end-June, the Employees Provident Fund has total assets of RM407 billion: that's more than half of the size of the Malaysian economy
Malaysia's biggest pension fund reported strong second quarter numbers yesterday but its huge size also has economists and fund managers worried about the fund's long-term growth prospect.
"The bigger one gets, the more difficult it is for one to produce the same returns," said Aberdeen Asset Management managing director Gerald Ambrose when contacted by Business Times yesterday.
"I think one of the challenges is to get good quality investments. I think that's why they are also diversifying into private equities and properties," said Dr Yeah.
Economists agreed that EPF's asset size has grown tremendously over the past several years. Back in 2006, its fund size was about RM260 billion and 80 per cent of its funds were invested in domestic fixed-income with the rest in domestic equities.
Today, not only is EPF investing in private equities and properties, it is also investing overseas, but that also has it sets of challenges.
"Now, besides looking at country risks, you also have to look at currency risks. It's not going to be easy," added Dr Yeah.
Ambrose added that low interest rates globally have also made it tougher for fund managers to hunt for investments with good returns.
With all these challenges, how can the EPF or its contributors continue to enjoy the returns they have had in the future?
An analyst suggested that EPF should give more leeway and flexibility to contributors when it comes to how they want their savings to be invested. This means allowing contributors to take their savings of any amount to a unit trust or fund manager of their choice.
"This would also indirectly create competition for EPF. Competition is good, as in the long run, it will help fund managers to invest more efficiently," added the analyst.
Meanwhile, the EPF posted a 23.4 per cent rise in its net investment income in the second quarter.
It reported an investment income of RM5.93 billion for the quarter ended June 30 2010 compared with RM4.8 billion in the same period last year. It was also about 8 per cent higher against the first quarter this year.
During the second quarter, the growth in investment income was mainly led by its equities portfolio, which jumped 57 per cent to RM2.72 billion, from RM1.74 billion recorded in same period last year.
Loans and bonds were the second largest contributor at RM1.9 billion, which represented a 5 per cent gain from second quarter last year. Investments in Malaysian Government Securities contributed an income of RM1.1 billion, a drop of 1 per cent from RM1.11 billion in the same period in 2009.
Income from money market instruments however, recorded the most significant rise at 94.23 per cent to RM183.1 million, while income from properties also rose 9 per cent to RM22.76 million.
"Although we have performed well in the first half of the year, we are cautious over the outlook in the second half. Nonetheless, we will continuously seek to optimise returns and add value to members' retirement," said EPF chief executive officer Tan Sri Azlan Zainol.
Malaysia's biggest pension fund reported strong second quarter numbers yesterday but its huge size also has economists and fund managers worried about the fund's long-term growth prospect.
At the end of June this year, the Employees Provident Fund (EPF) has total assets of RM407 billion: that's more than half of the size of the Malaysian economy, forecast to be RM712 billion this year.
"The bigger one gets, the more difficult it is for one to produce the same returns," said Aberdeen Asset Management managing director Gerald Ambrose when contacted by Business Times yesterday.Ratings Agency Malaysia (RAM) chief economist Dr Yeah Kim Leng agreed.
"I think one of the challenges is to get good quality investments. I think that's why they are also diversifying into private equities and properties," said Dr Yeah.
Economists agreed that EPF's asset size has grown tremendously over the past several years. Back in 2006, its fund size was about RM260 billion and 80 per cent of its funds were invested in domestic fixed-income with the rest in domestic equities.
Today, not only is EPF investing in private equities and properties, it is also investing overseas, but that also has it sets of challenges.
"Now, besides looking at country risks, you also have to look at currency risks. It's not going to be easy," added Dr Yeah.
Ambrose added that low interest rates globally have also made it tougher for fund managers to hunt for investments with good returns.
With all these challenges, how can the EPF or its contributors continue to enjoy the returns they have had in the future?
An analyst suggested that EPF should give more leeway and flexibility to contributors when it comes to how they want their savings to be invested. This means allowing contributors to take their savings of any amount to a unit trust or fund manager of their choice.
"This would also indirectly create competition for EPF. Competition is good, as in the long run, it will help fund managers to invest more efficiently," added the analyst.
Meanwhile, the EPF posted a 23.4 per cent rise in its net investment income in the second quarter.
It reported an investment income of RM5.93 billion for the quarter ended June 30 2010 compared with RM4.8 billion in the same period last year. It was also about 8 per cent higher against the first quarter this year.
During the second quarter, the growth in investment income was mainly led by its equities portfolio, which jumped 57 per cent to RM2.72 billion, from RM1.74 billion recorded in same period last year.
Loans and bonds were the second largest contributor at RM1.9 billion, which represented a 5 per cent gain from second quarter last year. Investments in Malaysian Government Securities contributed an income of RM1.1 billion, a drop of 1 per cent from RM1.11 billion in the same period in 2009.
Income from money market instruments however, recorded the most significant rise at 94.23 per cent to RM183.1 million, while income from properties also rose 9 per cent to RM22.76 million.
"Although we have performed well in the first half of the year, we are cautious over the outlook in the second half. Nonetheless, we will continuously seek to optimise returns and add value to members' retirement," said EPF chief executive officer Tan Sri Azlan Zainol.
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