Malaysia’s $27 billion pension fund to raise global investments

Malaysia’s $27 billion pension fund to raise global investments
Business & Markets 2013
Written by Bloomberg
Friday, 30 August 2013 09:54

KUALA LUMPUR (Aug 30): Kumpulan Wang Persaraan (Diperbadankan), Malaysia’s second-biggest pension fund, is looking at real estate assets in Australia and the U.K. as it seeks to increase its investments overseas.

“We are doing due diligence on an Australian property worth more than A$100 million ($89 million),” Chief Executive Officer Wan Kamaruzaman Wan Ahmad said in an interview in Kuala Lumpur yesterday. “We want to increase our real estate investments because it fits into our strategy and will give us steady recurring income from rentals and upside on asset appreciation.” He didn’t provide details of any U.K. property investments under consideration.

The retirement savings fund, also known as KWAP, has more than 91 billion ringgit ($27 billion) in assets and currently can invest as much as 10 percent overseas, Wan Kamaruzaman, the former general manager of treasury at state-owned Employees Provident Fund, said. The fund will announce an increase in that limit today as part of a strategy to diversify its portfolio, he said, without specifying the new limit.

KWAP’s investment abroad now accounts for 6.2 percent of its total assets, including 2 billion ringgit already invested in PROPERTIES [] in Australia, according to data on its website.

Domestically, KWAP has used some of the 5 percent to 10 percent of funds it typically holds in cash to buy Malaysian stocks and bonds during their recent slide, which was triggered by expectations that the U.S. may reduce its monetary stimulus, said Wan Kamaruzaman, who took up his position in May. The weakness in the domestic markets is temporary and will recover in two to three months, he said.

Emerging Markets

Global funds have withdrawn about $44 billion from emerging-market stock and bond funds since the end of May through last week, according to data provider EPFR Global, a Cambridge, Massachusetts-based firm that tracks fund flows.

Malaysia’s stock market has fallen 6.7 percent since it touched a record of 1,826.22 on May 6 after Prime Minister Najib Razak was re-elected in polls a day earlier. Yields on 10-year government bonds have climbed 72 basis points to 4.06 percent while the ringgit slid 10 percent against the dollar over the same period.

“The market is always fickle-minded,” Wan Kamaruzaman said. “Can the fundamentals of a country change in four months? I don’t think so.”

The ringgit’s fair value should be 3.10 to 3.20 against the dollar as the country is backed by strong reserves, Wan Kamaruzaman said.

Ringgit Assets

While global funds are shifting to developed nations, the current weakness in the Malaysian currency will attract new investors to look at buying ringgit assets, he said. The current interest-rate differential also favors the ringgit over major currencies and this will support the Malaysian unit in the future, said Wan Kamaruzaman.

KWAP held 22 billion ringgit, or 24 percent, of its assets in government bonds at the end of March, making it the second- largest shareholder of that asset class in Malaysia. It also invested 28.4 billion ringgit in stocks, 26.53 billion ringgit in loans and private debt securities and 8.07 billion ringgit in money market deposits.

The Kuala Lumpur-based fund posted gross investment income of 1.21 billion ringgit in the first quarter and 5.75 billion ringgit in 2012, the highest since its establishment in 2007, according to data published on its website. The 23 percent increase in income last year was due to a rally in the local bond and equity markets, Wan Kamaruzaman said.

Outperformed EPF

KWAP outperformed the 14 percent return posted by the Employees Provident Fund or EPF, the nation’s biggest state-run pension operator that manages 526.8 billion ringgit.

EPF fell one step to 10th spot in 2011 in a global ranking of pension funds by consultants Towers Watson & Co.

KWAP collects an average of about 4 billion ringgit annually from its members or a monthly rate of 17.5 percent of the pensionable employees’ basic salaries. As of March 31, there were 484 contributing employers, which comprise statutory bodies and local authorities, and 150,999 registered members, according to information published on its website. EPF receives about 2 billion ringgit a month from its 13.6 million members, who make a compulsory 11 percent monthly contribution while employers add another 12 percent.