Is EPF speculating?
QUESTION TIME
One thing stands out from the announcement of the first quarter results
of the Employees Provident Fund (EPF); the retirement repository of
over 12 million Malaysian workers which now manages some RM540 billion
of funds and is one of the largest single retirement funds in the world.This
is a sharp drop in its investment income to RM5.6 billion for the first
three months of the year, down 28 percent from the RM7.74 billion
recorded for the corresponding quarter last year.What is
positively alarming is the statement that explains the drop: “Income in
1Q12 was boosted by one-off gains that were not replicated in 1Q13. A
lack of volume on the local Bursa Malaysia in the first quarter also
contributed to the decline in earnings this quarter.”That’s
puzzling on two counts. First, what kind of one-off gains did it
benefit from last year? Did it
sell shares that it had acquired cheaply to register income? If it did
so, then what was the reason? Could it be to pay a good dividend for
last year to members this year?Second, why does EPF depend
on stock market volume to make its money on the stock market? As a
long-term investor which safeguards the savings of its members for
retirement, is it not incumbent upon it to get the best returns over a
period of time instead of short-term profits that cannot be repeated?The
overall paramount question arising from these is whether the EPF is
speculating with members’ money instead of investing it in assets which
provide a steady stream of earnings and capital appreciation over an
extended period of time.EPF’s behaviour in terms of
investing in the stock market is worrisome and has deep implications on
the returns it provides on members’ money. The evidence is clear that
EPF is engaged in trading to get income up, a
dangerous way to go as this is a high-risk strategy totally out of
whack with its stated objectives.And because EPF, the
largest single investor in the local stock market, has such a colossal
amount of money, it is rather easy to hide the individual losses that it
makes.A look at its income figures is instructive. It
made RM1.52 billion from Malaysian government securities and equivalents
in the first three months of the year, the same as in the previous
corresponding period. Income from loans and bonds amounted to RM1.92
billion, down RM485 million or about a fifth, probably reflecting
declining interest rates.The big fall was in equities
where income declined RM1.71 billion or nearly 50 percent to RM1.86
billion while contributions from money market instruments declined to
RM78 million (RM178 million previously) and real estate and
infrastructure increased to RM227 million (RM74 million).The
big reduction in
equities income must reflect decreases in trading income, obtained from
the buying and selling of shares, because dividend income from year-to
year for the shares would not have been very different. That EPF is so
dependent on trading income is unhealthy and risky.
Feel-good factor for the electorate?The
question is whether EPF deliberately tried to increase its trading
income last year so as to be able to pay better dividends this year
ahead of the general election as a feel-good factor for the electorate.The
fund declared a dividend of 6.15 percent for 2012 in February, an
increase over the 6 percent paid out for 2011. It represented a record
breaking total of RM27.45 billion being distributed to its members, an
increase of 12.2 percent the RM24.47bil paid out in the previous year,
said EPF chairperson Samsudin Osman.“Notwithstanding the
increasingly complex investment environment, the EPF
maintained its steady upwards momentum to post its strongest set of
results since the turn of the millennium, underpinning the effectiveness
of its long-term investment strategy as well as its disciplined and
prudent approach,” he said in a press statement.Unfortunately,
that may have been less than prudent. By taking profits on good
investments, it is by no means certain that EPF can get back into these
investments at the same attractive prices again. As a long-term
investor, it should be invested in good companies which provide good
returns.This is all the more important as equities have
become the largest single asset class for investments held, accounting
for RM203.75 billion or nearly 40 percent of the fund with loans and
bonds accounting for RM151.48 billion and government securities RM145.56
billion.A check of trading on May 17 on the local bourse
shows that EPF is the most active player on the market, buying and
selling some 32 million shares. In some instances, on the same day, it
bought and sold hundred of thousands of the same share, incurring
needless brokerage.In contrast, the other major investor
on the stock market, Permodalan Nasional Bhd (PNB) and its unit trusts,
sold just 2.32 million shares - EPF trades amounted to some 14 times
that.PNB has some RM240 billion under management at last
count with an estimated 80 percent or so invested in the equities
markets, which amounts to about RM192 billion, only about 5 percent less
than EPF’s RM205 billion. Yet EPF’s transactions are 14 times that of
PNB! Why?Surely trading stocks cannot be one of the mainstay incomes of a retirement fund.
P GUNASEGARAM is founding editor of
KiniBiz. He is appalled at the continuing lack of transparency, governance and accountability of the EPF.
