Research - APRIL 30, 2014

Malaysia increases exposure to real estate and infrastructure

by Reg Clodfelter

The $179.8 billion Malaysian Employees Provident Fund has increased its allocation to real estate and infrastructure by approximately $1.8 billion and invested an additional $7.7 billion in overseas markets — $783 million of which is invested in global property — according to its annual report.

“To maintain our goal of offering real dividends of 2 percent, the EPF has gradually increased our exposure to higher yielding assets such as equities and real assets, which include property and infrastructure,” the EPF said in the report. “In the current low-interest environment, investments in real estate and infrastructure have acquired a more positive outlook, and being long term, fit well with the EPF’s risk/return profile.”

The EPF’s real estate and infrastructure portfolio performed much better in 2013 than in 2012, producing an income return of 3.25 percent, as opposed to 1.92 percent the previous year. 

The EPF began investing overseas in 1996, and since that time has gradually increased its cross-border exposure. In 2013, the fund increased its exposure to global investments from 17 percent of its total portfolio to 21 percent, and increased its ceiling to global investments to 23 percent, citing the need to both diversify geographically and provide “much needed” access to attractive global opportunities that fit within the risk-return profile. The new ceiling would allow for the EPF to invest an approximate $3.5 billion more in overseas markets.

“We have made the most of the opportunity to spread our funds by looking more aggressively at the foreign capital market as well as property,” the report continued.

Though the fund is clearly intent on continuing to ramp up overseas exposure, the report notes that this will also expose the fund to increased liquidity and foreign currency risks. The EPF goes on to state that the fund has put in place a comprehensive hedging policy and structure to mitigate these risks.

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