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Malaysia’s EPF Pays Msians Close to ROI!
An honorable member of the Coffee Shop Has Just Posted the Following:
Malaysia’s EPF 4 vs Singapore’s CPF 0 June 20th, 2014 | Author: Contributions After Norway has trashed Singapore 8-0 (some thought the score should be 9-0!) on the issue of Sovereign Wealth Fund transparency, the writer received several requests to look into how a less transparent SWF stacked up against our own. For this, the writer picked our close neighbour, Malaysia’s Employee Provident Fund (EPF) which, by itself is no model of transparency on the scale of Norway’s Government Pension Fund. Even so, Malaysia thumped Singapore by 4-0. EPF is CPF-GIC-Temasek Combined As a preamble, it is useful to note that EPF not only manages the provident fund like CPF but is also responsible for investing members’ funds both domestically and internationally like GIC and Temasek. As such, there is no equivalent of the Special Singapore Government Securities which stands in the way of transparency and of CPF members getting a return that is not dictated by politics. By its construct, the EPF already beats CPF. Let us see how EPF stacked up against GIC and Temasek. Snapshot of EPF’s Key Numbers EPF’s 2013 Annual Report contains more information 20092010201120122013AveReturn on Investment4.886.086.586.876.976.28Dividend Rate5.655.806.006.156.355.99on its investments than GIC, and Temasek. First, let us look at EPF’s market value which includes invested funds, new monies and retained earnings (Annual Report which shows the last 5 years return can be download back to 2001). Next, the annual returns and dividend payouts over the past 5 years are provided below. It can be seen that EPF’s payout to its members is close to its rate of return on investments. The writer surmised that EPF is prudent to retain some of its returns in its general reserves to mitigate against potential losses. GIC’s 5 year return in US$ terms at 2.6% or estimated 0.6% in local currency terms and Temasek’s 3% in local currency terms compares poorly to EPF’s 5-year return of 6.28% in its own local currency terms. As noted in the Norway 8 Singapore 0 article, GIC does not disclose its total market value. Neither does GIC disclose its annual rate of return except for rolling 5, 10 and 20-year rates. Temasek does not have annual rate of returns earlier than 5 years ago. It should also be noted that EPF’s growth in market value should be driven largely by members’ monies because most of its returns are paid out in dividends. Other Useful Information The EPF provides the following information that neither GIC nor Temasek provide.
A Pertinent Question Under its current investment mandate, the EPF can only invest 23% of its funds outside of Malaysia. Its domestic portfolio comprises equities, bonds, loans, deposits and properties. It is subject to less foreign exchange risk than GIC which has nearly all its assets invested overseas. Surely, there is a dichotomy between citizen’s retirement funding being in S$ and GIC’s returns being in foreign currencies which put CPF funds at risk to foreign exchange loss caused by the MAS’ exchange rate policy. One would expect at least a proportion of its assets ought to be domestic. But the valuable S$ GLC assets are in Temasek which states that it does not manage CPF monies. Should not the GLC assets be under GIC instead, to reduce the foreign exchange risk of CPF funds, or is the government keeping its most valuable assets to itself? It is not difficult even for a layman to see the contradictions running through the entire CPF-GIC-Temasek set up, make even more contradictory by the MAS policy which produces a negative effect on overseas investment income. Conclusion The EPF is admittedly a different animal but the writer finds little to fault its set up in comparison to the multiple layers in Singapore. The point should already be made that although the EPF is no Norwegian GPF, it is still 4 goals to zero to Malaysia. In purely local context, Malaysia “boleh”, Singapore “tak boleh”. Chris K * Chris K holds a senior position in a global financial centre bigger than Singapore. He writes mostly on economic and financial matters to highlight misconceptions of economic policy in Singapore. Click here to view the whole thread at www.sammyboy.com. |
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