EPF keen to invest more in natural resources

KUALA LUMPUR: The Employees Provident Fund (EPF) is looking for more exposure in natural resources particularly in palm oil and renewable forestry, said its CEO, Datuk Shahril Ridza Ridzuan.

“We are already today one of the larger investors in palm oil production. As you know, we are a significant shareholder in a number of very well run palm oil companies and we’ve been looking at the prospects of taking a more direct exposure. Not just through the listed space but perhaps directly owning or having control of some of these planted assets,” he told reporters at a briefing yesterday.

He said the EPF has been looking more at the plantation sector as it generally tends to perform fairly well in terms of cash flow generation. He said palm oil prices and production can be quite synchronised with prices moving up when production falls off.

“The net effect is that cash flow tend to be fairly stable and that’s why you notice for Malaysian palm oil companies, the ones who really know their business well, they are generally able to perform year in year out despite any volatility in palm oil prices. That’s one area in particular we have been quite keen to look at and explore,” he added.

He did not disclose which plantation companies that the EPF is eyeing, saying that it will depend on valuations.

Shahril said it is also considering renewable forestry, which are forest plantations where trees are grown for timber on a sustainable basis.

“We have been exploring to see if this is suitable for us, we haven’t come to a conclusion on that yet but certainly I think it is a direction which you’ll notice several pension funds around the world are moving into,” he said.

He said renewable forestry has very long life cycles and is popular with pension funds of countries like the US and Canada and in Europe as they have big industries moving around sustainable forestry.

“The whole idea is to build up a portfolio of very long-term assets which can provide not just steady cash flow and pretty good cash flow but also some inflation hedging because land tends to be a scarce resource,” he said.
However, it is less keen on minerals and energy due to the price volatility in terms of the global markets for these assets.

“These assets would introduce too much price volatility into our portfolio. Whereas things like palm oil, agriculture, sustainable forestry tend to be more stable in terms of dividend profile,” he added.
For 2016, 49% of the EPF’s investment was in fixed income, 42% in equity, 4% in real estate and infrastructure, and 5% in money market.
Shahril said its strategic asset allocation measures have been delivering on their targets and does not expect much changes in its strategies this year.
The EPF’s total investment assets grew 6.81% to RM731.11 billion in 2016 from RM684.53 billion in 2015. It ended the year with RM46.56 billion in total gross investment income with a gross return on investment of 7.12%, 36 basis points lower than 7.48% in 2015.
Meanwhile, a total of 635,037 members switched from their conventional savings to Simpanan Shariah as of Dec 23, 2016, with RM59.03 billion allocation taken up.
Shahril said Simpanan Shariah will see a higher take-up rate from 2018 onwards, once it announces the first dividend for 2017.
About 45% of the EPF’s investment assets were already shariah-compliant prior to the introduction of Simpanan Shariah and the EPF aims to grow these assets by at least RM25 billion a year on average.