Malaysia's biggest pension fund to double property investments

[KUALA LUMPUR] Malaysia's US$178 billion pension fund plans to double its real estate assets in the next few years as it seeks to diversify its holdings that are mostly invested in bonds and stocks.

The Employees Provident Fund, whose property investments include 11-12 St James Square and the Battersea Power Station project in London, is now looking at buying more assets in continental Europe, chief executive officer Shahril Ridza Ridzuan said in an interview in Kuala Lumpur Tuesday. EPF manages the retirement savings of more than 13 million people.

"Our real estate exposure is very small, less than 4 per cent, at this point in time," Mr Shahril said.

"It's the fastest growing part of our business. The goal is for private market assets to take about 10 per cent of the total fund size in five to seven years."

EPF joins sovereign wealth funds looking to raise their global real estate investments. Oslo-based Norges Bank Investment Management, the world's biggest wealth fund, aims to invest 50 billion kroner (S$8.2 billion) each year in properties while GIC Ltd, the manager of more than US$100 billion of Singapore's reserves, wants to focus on larger, deeper markets and "gateway cities."

The Malaysian fund's foreign real estate and infrastructure investments have grown by an average of more than 50 per cent per annum, according to its 2014 annual report.

Since 2009, it's been investing in property as a hedge against inflation. With 51 per cent of its investment assets in fixed income instruments and 42 per cent in equities as of Dec 2014, EPF's returns are influenced by interest rates and inflation movements.

The MSCI World Real Estate Index has gained 4.2 per cent this year, compared with the 0.9 per cent drop in the measure tracking the world's developed markets.

The Kuala Lumpur-based fund reported RM44.2 billion (S$15.45 billion) of gross income from investments last year, 13 per cent more than it earned in 2014, helped mainly by its strategy to invest in multiple asset classes globally, according to a Feb 20 statement. EPF paid out RM38.24 billion to its members, equivalent to a 6.4 per cent dividend rate, for 2015.

EPF has 26 per cent assets tied up in overseas investments and is "comfortable" with that level, Mr Shahril said.

The fund collects more than RM3 billion on average every month from its members, who can opt to make a compulsory monthly contribution of 8 per cent or 11 per cent while employers add another 12 per cent.

Membership is mandatory for working Malaysian citizens, or non-Malaysian citizens who are permanent residents.

BLOOMBERG