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% |
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 |
|---|
| 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**
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.
