EPF's Azlan explains timing of overseas investments

By YAP LENG KUEN


THINGS were going on well for the first three quarters of last year, Then in October, the markets saw the crash of the 120-year-old Lehman Brothers and the snowballing of the US subprime problem.

Other funds have been badly affected too. Calpers, the US’ largest pension fund, has dropped by 28% in value; Khazanah 20% and Temasek 31%.

The Singapore central provident fund has two accounts – ordinary that is paying a dividend of 2.5% while retirement and medisave is paying 4%.

An analysis of the EPF dividend over the last five years, split into equity and fixed income, revealed that without making any provisions, the dividend could be much higher.

Could the timing of the overseas investments be held back in view of red hot prices already at a high in many equity and commodity markets? Was there any advice against this at that time?

“There was no advice internally or externally not to enter these foreign markets at a high,’’ said EPF CEO Datuk Azlan Zainol. In fact, one or two organisations that the EPF met had expressed their support as they also agreed that Malaysia was a small market.

“Every time we go into the market in Malaysia, we end up owning stocks like Maybank where we would be holding a stake of less than 20%. We shouldn’t have such high stakes as 15%-16% in Malaysian companies,’’ he said.

The fund has strategic stakes only in the RHB group, Malaysia Building Society Bhd and Malaysian Resources Corp Bhd.

“For the rest of the companies, we should only be looking at 5%-9% stakes. Because we have no choice, we have to buy into these so-called good counters,’’ he said.

On top of that, each time the EPF goes into the market, it accounts for almost 20% of the volume. “That is not good. By right, a fund should not take more than 5% of the volume especially when the market is so dull,’’ he said.

The fund started going abroad in 2007 and 2008. “If people say the timing was not so good, the answer is ‘yes’ and ‘no’. Suppose the subprime market and Lehman had not collapsed, it would have been good. Did anybody say at the beginning of last year that this was going to happen?’’

No doubt, economists had been voicing their concerns over subprime and high levels of debt. “But nobody could foresee that it would be so terrible.

“Can anyone imagine that a 100-year-old bank can just go down like that, or Citigroup would shrink in value in just 12 months to US$1 from US$100?’’ he asked.

In retrospect, it is very easy to say what should not have been done. But the fund has been selling too. In January alone, it sold RM5bil in domestic equity.

“We were selling and luckily, we sold a 25% stake of RHB Capital to Abu Dhabi Commercial Bank at RM7.20. Today, RHB is only RM2-RM3. But I don’t think that was very clever as I thought I could get RM10. That is luck,’’ he said.

However, the EPF’s performance in equity investments had dropped by less than 20% in both domestic (18.4%) and overseas markets (19.5%). In comparison, the KLCI had dived by 39.3% and the Dow Jones 33.8%.

The Tokyo, Hong Kong and Singapore markets were down by more than 40% last year compared with 2007.