[h=2]Malaysia’s EPF 4 vs Singapore’s CPF 0[/h]
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
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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.
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
on 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.
on 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.
| 2009 | 2010 | 2011 | 2012 | 2013 | Ave | |
| Return on Investment | 4.88 | 6.08 | 6.58 | 6.87 | 6.97 | 6.28 |
| Dividend Rate | 5.65 | 5.80 | 6.00 | 6.15 | 6.35 | 5.99 |
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</tbody>
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.
- Top 30 risk exposure (all Malaysian companies), not as good as the GPF.
- Its operating expenses which include the entire infrastructure of EPF, not
just its investment fees, equal to 0.21% for 2013, averaging just 0.18% for the
5 year period.
- It is clearly stated in its governance report that MYR 1,317,600 is paid to
the Board and Investment Panel members and MYR 2,781,105 is paid to its Chief
and Deputy Chief Executive Officers.
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.
