EPF records gross investment income of RM15.12b in 2Q

KUALA LUMPUR: The Employees Provident Fund (EPF) recorded a gross investment income of RM15.12bil in the second quarter ended June 30,2020 during extremely volatile and challenging conditions.

In a statement issued on Saturday, the retirement fund said equities, which contributed 54% to total gross income, registered RM8.11bil in investment income.

This was followed by fixed income instruments, which contributed RM6.17bil. Real estate and infrastructure, as well as money market instruments, contributed RM470mil and RM370mil respectively.

However, net investment income declined to RM13.46bil after the cost write-down on listed equities, which the EPF described as prudent practice to ensure its long-term investment portfolio remains healthy.

Chief EPF officer Tunku Alizakri Alias (pic, below) said the extremely volatile and challenging conditions seen from the early part of 2020 showed no signs of normalising.

He cited ongoing issues, such as the US-China trade tensions and low oil prices, remain unresolved and Covid-19 continued to run havoc in unprepared countries around the world.

“Major economies had gone into lockdown and the closed borders meant that supply chains were disrupted, causing slowdowns in many sectors and industries.”

“The EPF’s Strategic Asset Allocation framework, that guides us in how we structure our investments and portfolio, served us well during the tumultuous first half of the year. For example, our exposure in fixed Income instruments enabled us to ride out the initial slump at the beginning of the quarter.

“We then saw an upward movement in equities towards the end of the quarter when both the FBM KLCI and the global markets started to improve as economies gradually but cautiously reopened.

“Moving forward, we remain cautious as a second Covid-19 wave remains a possibility which will have a major negative multiplier impact on the already weak economic conditions faced by many countries which have yet to come out of the first wave.”

Tunku Alizakri said EPF’s Strategic Asset Allocation (SAA) allocates 51% to fixed income instruments, 36% to equities, 10% to real estate and Iinfrastructure and 3% to money market instruments as a framework to optimise its long term returns within tolerable risk limits.

He said the EPF’s overseas diversification strategy guided by the SAA has helped add value to its overall performance.

As at end-June 2020, the EPF’s investment assets stood at RM929.64bil, of which 30% was invested in overseas investments.

As of 2Q, 39% of the total gross investment income recorded was contributed by the EPF’s overseas investments.

The overseas income was driven by a recovery across global equity markets in the second quarter, which allowed the EPF to ride out the slump during the first quarter of the year.

Fixed income also contributed higher gains due to the low yield environment, which provided more opportunity for the fund to realise its gains.

On the outlook for the remaining half of 2020, Alizakri said: “We are maintaining a cautious stance as even though more countries are easing their quarantine restrictions and markets reopening for business, the vaccine for Covid-19 still remains a promise that will not be fulfilled in the immediate future.

He cited Australia’s Victoria state which had gone back into lockdown in early July and New Zealand and Hong Kong relooking at their control measures.

“In light of the unprecedented situation, we believe that we have managed to deliver a satisfactory performance, balancing the pressing liquidity needs of our members against the long-term responsibility of ensuring financial adequacy at retirement and sustainable returns on investment.

“Moving forward, it will be even more crucial for the EPF to continue investing in fundamentally strong assets, especially those companies which have shown an ability to pivot in adapting to the new norm.”

Tunku Alizakri said the EPF was also committed to accelerating the adoption of Environmental, Social and Governance (ESG) criteria as a core part of its investment decision-making process.

“In light of increasing uncertainties and volatilities becoming a norm, strong ESG practices will become a requirement as we believe that it will enable economies, industries and companies to be more adaptable and resilient in times of crisis, ” he said.