Malaysia Pension Fund Returns 7.64% in Q2

Malaysia’s RM813.18 billion ($196.43 billion) Employees Provident Fund (EPF) reported a 7.64% increase in quarterly total investment income to RM12.39 billion for the second quarter ended June 30, from RM11.51 billion recorded during the same period last year.

The value of EPF investment assets reached RM813.18 billion, which was a 0.38%or RM3.05 billion increase, from the end of 2017, but a marginal decline from the first quarter of 2018 due to the drop in equity markets.

Disappointing returns from emerging market investments prevented the fund from reporting higher returns for the quarter.

“The escalating US-China trade tensions and the US interest rate hike contributed to capital outflows from emerging markets, including Malaysia,” EPF Deputy CEO Dato’ Mohamad Nasir Ab Latif said in a release. “While some developed markets, including the US and Eurozone countries, recorded gains in their equity markets, the emerging markets, which include Asia, recorded negative returns.”

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He added that investments from Association of Southeast Asian Nations (ASEAN) were among the worst performers for the fund.

“Nonetheless, the diversification into different markets and sectors has enabled the EPF to record consistent performance with equities emerging as the main contributor during the second quarter,” he said.

Out of the fund’s total investment assets, 39.71%, or RM322.89 billion, were in Shariah-compliant investments, while the remainder was invested in the conventional portfolio.

A total of RM1.09 billion out of the RM12.39 billion gross investment income was generated for Simpanan Shariah, and RM11.30 billion for Simpanan Konvensional. Simpanan Shariah derives its income solely from its portion of the Shariah portfolio, while income for Simpanan Konvensional is generated by its share of both Shariah and conventional portfolios.

Equities, which made up 40.61% of the fund’s total investment assets, contributed RM7.98 billion, representing 64.44% of total investment income for the quarter.

Fixed income investments, which account for 52.09% of the fund’s portfolio, returned income of RM4.09 billion, equivalent to 33.07% of the quarterly investment income. And income from Malaysian Government Securities (MGS) and Equivalent increased to RM2.40 billion during the quarter, while loans and bonds generated RM1.70 billion in investment income.

Money market instruments, which represent 2.53% of the fund’s total investment assets, contributed RM215.44 million in investment income, while real estate and infrastructure investments earned RM91.73 million in investment income for the quarter. Capital gains on disposal of equity totaled RM3.79 billion for the quarter

As of the end of June, the EPF’s overseas investments, which accounted for 26.5% of its total investment assets, contributed 38.3% to the total investment income during the quarter.

“Global market uncertainty continues to shroud the outlook for the rest of the year,” Nasir said, “given the continued political and policy risks such as the impending changes to monetary policies, uncertainty over the outcome of Brexit and the ongoing trade tensions between major trading nations.”

The fund also reported a 9.99% increase in contributions received during the quarter to RM18.17 billion, compared with RM16.52 billion during the same quarter last year. This raised the total accumulated members’ contributions to RM780.07 billion, up 9.55% from the RM712.04 billion reported a year earlier.

Tags: Emerging Markets, Employees Provident Fund, Malaysia, Pension

The world’s largest pension funds saw their assets under management surge 15.1% in 2017 to reach $18.1 trillion, more than doubling the growth rate of 6.1% for 2016, according to a report from Willis Towers Watson.

Emerging markets helped spur the growth, according to the report, and have become more prominent in the rankings in recent years with four new entrants from emerging market countries entering the top 20 pension funds over the last 10 years, including three from Asia, and one from Africa.

“The increased number of the largest funds originating from emerging market regions is reflective of a longer-term trend, with a great deal of progress being made in terms of governance structures and resiliency,” Roger Urwin, Willis Towers Watson’s global head of investment content, said in a release. “These countries are especially interesting to monitor as they are typically in the earlier stages of maturity and can continue to adapt and develop their investment models.”

China and India led all countries with reported annualized growth of 20.8% and 14.5%, respectively, in US dollar terms between 2012 and 2017.

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The report also found that defined contribution assets increased 17.6% during 2017, while defined benefit assets grew 13.5%. Defined benefit assets accounted for 64.7% of the disclosed total assets under management, down from 65.5% in 2016.

The share of reserve funds set aside by a national government against future liabilities were 11.8%, up from 11.5% in 2016, while hybrid funds with both defined benefit and defined contribution components accounted for less than 1% of the total.

Despite the strong growth from emerging markets, North America remained the largest region in terms of assets under management, accounting for 42.3% of all assets, followed by Asia-Pacific (27.3%), and Europe (26.5%). North America also had the fastest annualized growth during the period 2012 through 2017 at 6.2%, just ahead of Asia-Pacific’s 6.1%, and well ahead of Europe’s 3.8%.

A total of 26 new funds entered the top 300 over the last five years, with the US contributing the greatest net number of new funds. The US also still has the largest number of funds within the top 300 ranking at 133, with the UK a distant second with 25, followed by Canada with 18, and Japan and Australia, each of which accounted for 17 new funds in the top 300.

The report also found that for the top 20 funds, assets were mainly invested in equities (46.3%), followed by fixed income (36.1%), and alternatives and cash (17.6%). Meanwhile, on a regional basis, Asia Pacific funds had the largest allocation to fixed income (52.5%) and North American the largest allocation to alternatives (34.8%).

Tags: China, Emerging Markets, growth, India, Pension, Willis Towers Watson