As we have seen the last year or so, the ringgit has come under tremendous pressure and year to date, it has weakened against most currencies, especially the US dollar, the British pound and the Singapore dollar.
Had EPF not made forays abroad in 2009, its 14 million odd contributors would not have received dividends ranging between 6% and 6.75% between 2011 and 2014 and in the interim years of 2012, 6.12% and 2013, 6.35%.
Prior to this, EPF declared dividends of 5.8% in 2007, 4.5% in 2008, 5.65% in 2009 and 5.8% in 2010.
The Asian financial crisis in 1997/98 and the 2008 global financial crisis were costly lessons for EPF and the other funds.
Before its move to buy property abroad in 2008, less than 1% of its total funds were invested in real estate. Today, it has the mandate to invest up to 4% of its total funds of about RM700bil in local and foreign properties. It can also invest up to 26% of its available funds in non-ringgit denominated investment instruments including bonds, securities, properties and other others.
So far, EPF has invested more than £1bil in UK and more than 1bil euros in France and Germany. It also has properties in Japan and Australia.
Its core investments in Europe, excluding UK, are in the office and logistics sector. In UK, it has offices, logistics and 12 hospitals under the Spire brand. It also has a 20% stake in Battersea Power Station mixed used project. According to its head of global real estate in the private markets department Kamarulzaman Hassan, EPF would like to add retail hypermarket chain to its stable.
It is prudent and logical for EPF to seek opportunities in mature markets because although it knows the home market well, it is already in every sub-segment of the local real estate market – logistics, retail, office, residential.
As Kamarulzaman aptly said, EPF is “a big fish in a small crowded pond.” Other big fish in this small pond include Permodalan Nasional Bhd, Retirement Fund Inc (or KWAP) and Lembaga Tabung Haji, Perbadanan Hartanah Bumiputra among others.
There are several reasons why EPF has made forays abroad. It was badly hit in 1997 and 2008. Prior to this, it invested only in Malaysia. It had all its eggs in one basket.
Earlier this year, as the ringgit was weakening, certain parties in the government called on the various funds to bring their money home to shore up the ringgit. They were to curb investments abroad.
EPF subsequently sold 1 Sheldon Square, UK for £210mil (RM1.14bil), which it bought in 2010 for £156.7mi, giving EPF a net gain of £54 mil. Whether it made that decision to sell based on that call to bring the money home is a moot point. That property was tenanted out to Visa Services Europe until December 2022, with a 5.75% annual yield.
So far, KWAP and Felda have said they will not be selling their investments which gave them a good yield.
The thing is, if there is better yield to be had, and forex to earn, why dispose of them?
And why curb funds from investing abroad if they have done proper due diligence and are able to manage these investments well.
As it is, according to Kamarulzaman, London properties are so hot today that investors are willing to get 3.5% to 4% in annual yield.
Selling overseas real estate which were purchased when the pound was low, when it is offering a good yield, just to shore up the ringgit does not seem to be a wise call.
It is like killing the goose that lays the golden egg just to provide food for a day. Yes, London’s property prices are frothy now, but these property investment have long leases.
Besides, the markets it has invested in are mature markets with high liquidity. There is interest in these markets from around the world.
Because property sector is cyclical, the timing is important. EPF entered UK when the it was about RM5 to a pound. These investments came with long leases, which fit into EPF’s need for a steady income flow as it needs to pay dividends to contributors.
In short, going abroad gave it a much needed new investment platform which was not available at home.
These mature markets offer transparent legal and tax structures and clearly, governance was well established.
There is a clear exit option and this was demonstrated when it sold 1 Sheldon Square earlier this year.
UK properties have gone up in value considerably since. Whether EPF will continue to liquidate depends on various factors but to liquidate just to bring home the money to shore up the ringgit should not be one of them, especially when its investments are yielding good returns.
Property is today the biggest alternative asset class for institutional investors and forms the largest allocation for pension funds, insurance companies and sovereign wealth funds.
It is also not homogenous but in today’s volatile environment, it is more tangible than most other asset classes.
Comment by Thean Lee Cheng The Star/Asia News Network