Malaysian pension fund EPF to hit $250b AUM in 2-5 years, says incoming CEO

Alizakri Alias

The largest pension fund in Malaysia, the Employees Provident Fund (EPF), is set to grow its current assets under management from RM814.38 billion ($200 billion) to RM1 trillion ($250 billion) in the next two to five years, said its deputy CEO of strategy, Alizakri Alias.

He, however, declined to elaborate on the fund’s investment strategies. He is set to step in as CEO on August 20, succeeding current CEO Shahril Ridza Ridzuan who has been appointed as the managing director of Malaysia’s sovereign wealth fund Khazanah Nasional Bhd.

Speaking to reporters on the sidelines of the International Social Security Conference 2018 organised by EPF along with Nomura and Citi Malaysia, Alizakri said the pension fund had not received any information about the reported Socso-EPF merger. To recap, local media had reported that the pension fund is considering a merger with Social Security Organisation (Socso) to streamline its social welfare efforts.

The incoming CEO also emphasized that the pension fund is free from any interference as its objective is to generate social benefits and financial returns for its 13.7 million members.

He pointed out that it was crucial for pension funds around the world, including EPF, to continuously reinvent themselves to maintain their relevance, especially to the younger population.

EPF on Thursday signed a memorandum of understanding with ride-hailing major Grab Malaysia to expand its social agenda into the gig economy through a voluntary contribution scheme, dubbed Caruman Sukarela Insentif Persaraan (i-Saraan) which will kick off on August 16. In return, Grab will also be contributing 5 per cent on the amount contributed by selected drivers subject to a maximum of RM80 ($19.65) per year, in addition to the government incentives.

i-Saraan was previously known as the 1Malaysia Retirement Savings Scheme (SP1M). The pension fund also had a similar pact last October with Uber before the ride-hailing startup exit Southeast Asia. Alizakri said, the MoU is part of the fund’s effort to prove its relevance in the digital economy.

“We reached out to gig economy workers to help them understand how they could contribute to the social security aspect of their workers. We managed to convince them – in a fairly short amount of time – that social protection is going to be the next biggest benefit to their workers at large who might not be covered under the EPF. And, due to this, these workers could opt to join our voluntary EPF contribution scheme. Under this scheme, they could contribute up to RM60,000 ($14,740) a year. The reason we cap it at that amount is that we want to serve the people at large,” he explained.

He went to add, “We have to make sure we are relevant to the gig economy and establish a branding that is sexy enough for the younger population. People’s engagement with EPF should be at various stages of their lives, not just during retirement. We need to meet the lifestyle needs of our members, when they step into their working lives.”

Edited excerpts:

Could you comment on the management transition?

It’s been very exciting – to put it mildly. From when we were still managing Shahril’s departure to when I was appointed to take over as CEO, it’s been a roller coaster.

Good news is that our succession planning is quite solid. When we knew that Shahril is appointed to head Khazanah, it was at the top of our minds that [the successor] must be someone from EPF. Because it’s such an important institution, it would be very difficult to have somebody [externally] to take over immediately. If you bring in a banker, you miss out on the social protection aspect of EPF.

So it is imperative for us to ensure the continuity. Internally, it was received very, very warmly. The sense of relief when a name was mentioned and it was one of us – it’s business as usual for us.

Although there is no merger between EPF and Socso as of now, is there any overlapping in terms of enhancing the social security aspects of Malaysia?

Socso and EPF are different. Socso is a social insurance scheme – that’s their model while we operate from a social benefits administration scheme. If you want to do it properly, you need to look at the rationalisation of the functions. At this point of time, both of us report to different ministries, different ministers with different objectives. And it’s natural again, without the single coordinating point or objective, we might come up with overlapping functions.

How has the social security agenda evolved in Malaysia and at EPF?

I’m very happy to see the transitioning or enhancement towards social security aspect. When we first started on the journey five years ago, the understanding wasn’t as deep as today. The alignment seems to bode well not only for EPF but for the whole of Malaysia because of the sheer number of members that we have at close to 14 million. If we get things right for the EPF members, it will also have a knock-on effect on making things right for Malaysians as a whole.

How could the social security of Malaysia be enhanced?

At the end of the day, what’s the objective of the government? Are we going to be purely driven by GDP perspective and economic progress – but at what cost? What about social progress? It’s not an easy question to answer. Because we know that if we push too much on the social agenda, you’re pushing down the economic agenda – where is the sweet spot?

So from our end, we will have to work with the government, to advise them and understand the type of budget that Malaysians need to live in urban and rural areas which would commensurate the type of wages – even the definition of wages would need to change because what is a wage? I see this as an opportunity to reinvent how we all live, work and play. If we have a strong enough social protection infrastructure, earning RM4,000 ($983) per month might actually be enough.

Looking at it from solely the salary perspective might be wrong, you need to look at it from a total social protection angle. Also, if we are to create a really good social security protection, we’re going to be taxed. You look at the Scandinavian countries, their tax system is anywhere from 50 per cent to 60 per cent. The reason why their people are not revolting is because they know where their tax money is going and benefiting them. It’s going to be a mindset shift for Malaysians in terms of viewing tax as something negative to looking it as contributing to the common good.

Having said that, will we see EPF focusing more on generating social good and pare down on dividend returns?

How far could we push this socialistic agenda? It’s a conversation we need to have with the government and all stakeholders. We have been pushing for a social well-being blueprint for the country. We don’t have much time to work on this – time is running out.

The pension funds of the world need to think about making the world a better place. Our members should start thinking about if the end goal of getting high financial returns the only reason that we should exist?

Should we not balance it out to the social good that the funds actually go into? Can we actually or maybe look at lower financial dividends for a higher social good? This is conjecture and I’m just seeding this out there. It’s a brave new world anyway.

Also read:

Malaysia’s $189b pension fund EPF appoints new CEO

Malaysian sovereign wealth fund Khazanah appoints EPF’s Shahril as MD

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.