Putrajaya January 9, 2024, PMX called upon GLCs to reduce investments outside Malaysia that are not profitable during the Finance Ministry’s monthly meeting. He added that:
- discussions with GLCs about investing in Malaysia to support our own growth will be initiated soon;
- GLC's investing abroad seems to be counterproductive to our efforts to attract foreign investments; and
- the limits for GLCs to invest outside Malaysia are to be capped at 20% to 25% of assets under management.
For the purpose of our discussion, we will limit the scope to that involving the EPF. We will look into the background of EPF's investment overseas from the year 2013. This will be followed with a discussion on the Proposed Revision by PMX and how will it Benefit the Malaysian Economy and Members of the EPF. Finally, we will conclude the discussion on what you can do if you are not happy with the lowering of Limits for Overseas Investments of the EPF.
Background to Increased EPF Investments Overseas
On September 13, 2013, Najib after meeting President Donald Trump announced that the EPF could invest USD3 billion to USD4 billion in the United States. He had said that the EPF had invested USD7 billion in the US and could invest an additional USD3 billion to USD4 billion. He positioned the EPF as the exporter of Capital to the United States and other countries.
The announcement and position taken by Najib did not go well with social media users and members of the opposition. Najib asserted that the EPF’s investments abroad brought in more money in returns than amounts taken out. The debate continued when the PH Government took over in 2018 with Tun suggesting that the GLCs, especially the EPF should invest more in Malaysia as the intention is to help support the Malaysian Economy. The arguments in support of EPF's overseas Investment are as follows:
- The EPF Act Allows Investments Abroad
The EPF is allowed to invest abroad according to the law under which it was enacted. It is a law relating to the retirement savings of members. It is also prudent to have currency and geographical divergence to reduce the risks associated with economic cycles and currency risks.
2. Independent Monitoring
EPF’s investments are tracked by the Public Accounts Committee and the audited accounts are tabled in Parliament to the Public Accounts Committee; Therefore, the EPF is made accountable for its actions.
3. Release of Performance Reports
The Fund releases performance results online quarterly under the News & Highlights Section. However, limited information is provided on where they are investing overseas;
4. Net Benefit to Investors
Based on published results the EPF’s investments abroad had benefited its members by cushioning its returns against the depreciation of the MYR and lower returns earned in the domestic market.
Proposed Revision by PMX and How will it Benefit the Malaysian Economy and Members of the EPF
Increase Funds for Investments in the Economic Growth and Jobs
As a result of the decrease in the limit of foreign investments by GLCs, more funds will be available as capital for investments in Malaysia. Higher investments will increase employment opportunities. The availability of higher capital can complement the inflow of foreign direct investments and increase the overall economic growth;
Higher Returns
Direct investments provide higher returns compared to investments in properties. The expected returns for direct investments are in the region of 15% to 20%. This is expected to increase the total EPF returns by 2% to 3% or higher subject to the total amount allocated for direct investments. Retirees who remain invested in the fund are likely to be able to benefit as a result.
What you can do if you are not happy with the lowering of Limits for Overseas Investments of the EPF?
If you are not happy with the proposed reduction in foreign investments and are of the opinion that it does not give you the benefit of risk reduction from diversification, you have the option of considering EPF-approved investments that invest mainly in foreign currency-denominated assets. However, be mindful that the EPF is capital guaranteed by the Government of Malaysia and carries a guaranteed minimum return of 2.5% per year and the amounts for such investments are subject to a limit. You also need to be aware that both of the guarantees will not be available for the portion that you choose to invest in the EPF-approved investments. This increases your risk relatively.
(Note: This is not a recommendation to buy, sell or invest in any funds. You need to understand the risk profile of the funds before investing and this is not a suggestion or recommendation for you to choose this option. Please speak to your investment bank or a licensed investment advisor, before making any decision)
END
Sivanesan Muthusamy is a Financial Markets Professional, Fintech and Startup Roll Out Strategist. He holds a Master's in Economics (Monetary Policy - Term Structure Analytics) and a degree in Economics (Hons.) Analytical Economics from the University of Malaya. His interests are in various fields and current issues. He is a strong believer in Malaysia and its potential.
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