Malaysia's EPF eyes direct natural resources investments in bid to diversify

KUALA LUMPUR, April 20 (Reuters) - Malaysia’s Employees Provident Fund (EPF) is mulling direct investments in plantation and forestry assets to diversify its holdings and beef up its portfolio of long term assets, the chief executive of the state pension fund said on Thursday.

EPF CEO Shahril Ridza Ridzuan said the move to seek exposure to hard assets in the natural resources sector is part of its strategy to actively diversify from fixed income and public equity.

“In the last few years, you saw us expand primarily in real estate and infrastructure, and we have done several transactions in those spaces especially in the infrastructure sector in Malaysia,” he said.

Real estate and infrastructure now make up 4 percent of EPF’s total investment assets valued at 731 billion ringgit ($166.19 billion) at end-2016.

He said the pension fund is considering direct exposure in the plantation sector for the “reduced volatility”.

EPF is a significant equity shareholder in Sime Darby Bhd , which runs the world’s largest palm oil operation by land size, holding a 9.83 percent stake, as at April 13, according to Thomson Reuters Data.

“Already we are one of the largest investors in palm oil production. We have been looking at the prospects of potentially taking a more direct exposure - not just through the businesses but directly owning or controlling some of these planted assets,” he said at a briefing to unveil the fund’s 2016 annual report.

However, the fund divested completely from its equity stake in Felda Global Ventures Holdings Bhd, the world’s third largest palm plantation group, in December, citing efforts to practice high standards of corporate governance and to manage risk.

The EPF is also taking a page from the investment playbook of its foreign counterparts, considering opportunities in the sustainable forestry space.

“(There is) a trend among our global counterparts...investing in renewable forests (and) farmlands. (It is) yet to be seen whether that is something suitable for us...but I think this is a direction to achieve, in which lot of the pension funds of the world are moving,” Shahril said.

EPF recorded a gross investment income of 46.56 billion ringgit ($10.59 billion) in 2016, a 5.3 percent improvement from a year ago. However, gross return on investment dipped 36 basis points to 7.12 percent. ($1 = 4.3960 ringgit) (Reporting by Liz Lee; Editing by Muralikumar Anantharaman)