Wednesday, December 24, 2008

Screwing EPF:The Easy Way Out

Hantu Laut

All those big talk about being well insulated from recession and flush with money and not to worry is going up in smoke.EPF been asked to buy prime and pricey land from the government to replenish their dwindling cash flow.

These are pension funds for mostly middle and lower income Malaysians.It is intended for employees from both the private sector and non-pensionable public sector.These are savings partly contributed by them and partly by their employers for retirement purposes or to be used in time of sickness.

Over the years the management of these funds by the government had seen nothing less than spectacular decline and poor dividend payout.The next few years would see further deterioration of dividend payment due to incompetent fund managers and government intervention in the basic usage of the funds.The portfolios should not include bailing out ailing companies or supplementing government budget deficit.

1983 to 1987 1988 to 1994 1995 1996 1997 to 1998 1999 2000 2001 2002 2003 2004 2005 2006
8.5% 8.0% 7.5% 7.7% 6.7% 6.84% 6.00% 5.00% 4.25% 4.50% 4.75% 5.00% 5.15% 5.80%



The table above shows drastic decline in dividend payment over the years due to poor investment strategy and lack of fiduciary discipline.Being the biggest fund one wonder how it could have performed so badly as compared to ASB (Amanah Saham Bumiputra) which have been declaring sterling rate of dividend as shown below.

ASB Dividend and Bonus Payment:
  • 1993: Dividend=9.00, Bonus=4.50*
  • 1994: Dividend=9.00, Bonus=4.50*
  • 1995: Dividend=10.0, Bonus=3.00*
  • 1996: Dividend=10.25, Bonus=3.00*
  • 1997: Dividend=10.25, Bonus=1.25*
  • 1998: Dividend=8.00, Bonus=2.50*
  • 1999: Dividend=10.5, Bonus=1.50*
  • 2000: Dividend=9.75, Bonus=2.00*
  • 2001: Dividend=7.00, Bonus=3.00*
  • 2002: Dividend=7.00, Bonus=2.00**
  • 2003: Dividend=7.25, Bonus=2.00**
  • 2004: Dividend=7.25, Bonus=2.00**
  • 2005: Dividend=7.25, Bonus=1.75**
  • 2006: Dividend=7.30, Bonus=1.25**
  • 2007: Dividend=8.00, Bonus=1.00**
It appears that ASB has a better Board of Directors and fund managers.Even in the 1997/1998 Asian financial crisis it managed to pay enviably high dividend and bonus payment.

If ASB, which is a much smaller fund can achieve such high value for its investments why can't the EPF be the same or better or was it because anything with the name 'bumiputra' get special treatment including getting good return on its investments.I am sure ASB is not running a Ponzi scheme like Bernard Madoff and wouldn't pay more than what legally it should be paying.It can only mean there is something very wrong with those responsible for the management of the EPF funds.Maybe, EPF should give the money to ASB to manage.

The Malaysian Insider reported that EPF may be asked to buy few plots of prime land in the city centre namely Jalan Ampang and Jalan Cochrane.What really surprised me was the valuation of the land mentioned at per sq.ft of RM150-RM250 for Ampang and RM100 to RM200 for Cochrane.That sounds pretty cheap for prime land smack in the city centre of a big city like Kuala Lumpur.I would have thought they would be more than RM500 per sq.ft and up to RM1000 in the Golden Triangle.No wonder those developers especially for high-end properties are making a killing.With cheap land and high plot ratio they are making a bomb out of the those suckers who bought their properties.Some of the high-end properties were selling for RM2000 or more per sq.ft.

If EPF bought those land and sit on it for the next three years without doing any thing to develop it or sell it at a profit it would have lost its opportunity costs.

Assuming EPF paid RM5 billion and its normal return on investment is 5%, it would have lost RM750 million in earnings for the three-year period.Unless the land can give an annual appreciation of 10% it is certainly not a good investment for EPF.

The other question is why isn't the government like most economically stable government do to raise funds by issuing government bonds domestically and internationally.Have the government reached maximum gearing in its debt' ratio and were afraid that the bonds would not be well received domestically and by the international community which, if happened, will downgrade our sovereign credit rating and increase the cost of borrowing.

I can see this as the only valid reason for the reluctance to issue bonds and the government preference for dipping their hands into the EPF coffers to supplement the budget deficit.

Vision 2020 looked very blur indeed.


kittykat46 said...

The key watershed will be when we become a nett oil importer - that's when the government's revenues really get into serious trouble.

Anonymous said...

Sorry HL, to spoil yr X'mas.

ASB is definitely a Ponzi scheme, a Pak Man Telo local show in the making.

In its early day, there r enough dividend returns through low investment cost. These investments were mainly done via govt arm-twisting.

Not anymore!

As time goes on this mouse has become KING RAT, with disastrous socia-political consequences if it failed.

The easiest thing to prove is accounting transparency. But there has never be any open disclosures. Even in the SSM one is hard to find the files of PNB, least ASB.

Remind one of the early day of Petronas filings in the ROC. Always not available through some reasons! Only lately (<10yrs) r the filings of Petronas been made accessible. Even that, one need some mind juggling to untangle the number acrobat to cut through the maze.

So I'm not TOO optimistic about the genuine of the ASB investment return in the next 10 yrs.

With the current world economic turmoil, PNB will probably need to think of SOMETHING quick to unwind this ASB in the next 10 yrs.

Something will break. Either by the M'sian economy or the world economy will do it for PNB.


Raison D'etre said...

Glad to see someone else hs picked up on this latest move of dipping into OUR pot of gold.

There's just no stopping the gravy train.

God bless.

Anonymous said...

EPF, not for us to control unless we topple UMNO!


Wishing you and your families a very happy Christmas and a healthy and prosperous New Year.

I am looking forward to a challenging but exciting 2009, when I will be encouraging us all to do whatever we can to support each other, in all that we do across the World. In this regard, I would welcome your individual thoughts early in the New Year, on how we can best support each other moving forward and what changes you would like to see, in order to facilitate that improvement.

Warmest regards and a big thank you to everyone for your efforts in 2008.

kittykat46 said...

Talking about Ponzi schemes...they have gained a lot of attention since the Mardoff fund collapse.

True Ponzi pyramid schemes, which purely function to milk their investors funds, and have no real substance behind it will collapse sooner or later, and good regulatory controls can help prevent or at least surface them.

What is a lot more common , much harder to detect are investment firms which do have real investment operations, real financial returns, but the dividends they are paying out are dressed up, and do not reflect the true level of returns. Such semi-honest, semi-crooked companies can carry on for a long time without being found out.

I suspect ASB is in this category.
I just cannot believe the consistency of its returns, even in lean years where most other ordinary investors, including other publicly available Unit Trusts have been badly burned.

Just like the Mardoff case, something doesn't add up with ASB...

Mat Salo said...

Screwing EPF? Looks like the rakyat is the one getting screwed again and again. Hey, Madoff did it, all the goons that traded in CDS did it.. and they all went crying to the gov't to bail them out. In this case it's the gov't screwing the rakyat, but inadvertently also screwing themselves by shooting themselves in the foot. There are no winners, only losers here. Except for the main players who are already at the top of the Ponzi pyramid. What else is new, Sir?

That aside, here's to wishing you a Merry X'Mas and a Happy New Year, Sir. I'm spending it on a rusted junk on the Straits of Makassar, about 800 kms south of KK.. wish me luck.

P.S. Kiitykat had point there when we become a net oil importer. I agree there's something not quite right with ASB also.

de minimis said...


Happy Holidays to you and your visitors. Keep blogging, bro.

donplaypuks® said...

There is something seriously wrong with the Govt's finances if it has to sell land in Ampang, Sg Buloh and Cochrane Rd to EPF, to raise funds for development or operating expenses. The PM and Bank Negara have to come clean instead of bleating around that we will not be affected by recession.

Obviously EPF is being targetted for rape because it has cash and even in depressed economic times, it still collects millions each month.

But, if raising money is the issue why not tender it out with a reserve price? Any half past six real estate valuer will be able to give you a fairly accurate valuation on these parcels of land and many Plcs will be keen to participate. It is not the business of EPF to invest in land or property development!!

As to the phenomenal returns ASB has been giving, one must remember that many of the shares were allotted to ASB at the time of listing while EPF largely purchases from the market and pays a premium. Thus ASB probably realises large capital gains to pay these exceptional dividends.

As to whether it has run a Ponzi scheme, we will only know if they open their books to public scrutiny.

Hantu Laut said...

Right!, they have to find other resources to increase the GDP to replace what they lost from oil.

Hantu Laut said...

The return is too good even in bad times.It seems so but I hope not.

Hantu Laut said...

Raison D'etra,
As I say it's the easy way out.

Hantu Laut said...

Happy Christmas to you too.I don't think the government will change,not in the near future.The only way is to keep the opposition strong and make them change the way they govern.

Hantu Laut said...

I have my suspicion,that's why I made a comparison.It's too good to be true.

Hantu Laut said...

Mat Salo,
Happy Christmas and Happy New Year to you.Too bad you could't get time off to enjoy the holiday.I like some of your sister's painting.Maybe,next time in KL I'll take a look at them.

Well, this is a government that still living in a state of denial,they keep saying we will not be hit by the recession, now they borrow your money to supplement their deficit.

Hantu Laut said...

de minimis,
Same to you.Merry Christmas and Happy New Year.

Hantu Laut said...

As long as EPF made good money out of it,it's should be fine, it is wrong if they used EPF as cheap source of financing.

ketam said...

so everybody let do invest in PUBLIC MUTUAL UNIT give greater return (slightly more than EPF)and more we do have to "SAKIT HATI" to what government do with pour money..

Do email me if you all interested hehehhe

Anonymous said...

you mentioned epf dividends have shown "...drastic decline... over the years due to poor investment strategy and lack of fiduciary discipline".

actually the headline interest rates have been falling since 1998 from its peak. given that majority of its investment in MGS, it explains why the rates are falling.

comparing PNB is not `apple to apple' because the asset allocation is different, as given in its risk statement in its annual report. i think EPF deserves a bit more credit on fiduciary discipline. we must not be obsessed with getting supernormal returns that comes from nowhere.