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Sakmongkol ak 47

ariff.sabri@gmail.com

Saturday, 25 October 2008

Is our Money in EPF Safe?

Let’s move on from depressing topics full of racist undertones. Let us focus on issues that affect all of us. Many have written on this topic. It is regarding the government’s decision to lend RM5 billion to a company called Valuecap Sdn Bhd.

The money comes from EPF where we pay our salary deductions as a set aside for our retirement. Obviously we are an interested party in the application of the EPF money. So what’s the story?

This much we can get from The Edge’s assessment of Valuecap Sdn Bhd. It is an asset management company owned by Khazanah Nasional Bhd, Permodalan Nasional Bhd and the Pensions Trust Fund Council. As announced by MOF1, it will receive an injection of RM5 billion to invest in undervalued companies on the Kuala Lumpur Stock Exchange.

The money, which doubles the size of Valuecap’s capital, is on loan from the Employees Provident Fund (EPF). Valuecap, which was set up in 2002 to add liquidity and volume to the market, has met these objectives. What do liquidity and volume mean?

Where do they invest currently? From the data we can gleaned, they invested in:-

Looking at past records, it is clear from the above Table, that EPF is investing in the same companies as does Valuecap SB. They differ in the value of investments only.

What is the point here? The point is the analysts at EPF are as good as those in Valuecap which strongly suggests, that they can invest directly into the stocks without going through an intermediary.

This in turn suggests the argument that the analysts in VSB are of superior quality than those in EPF put forward by the MOF2 is indefensible. If so, then the actual reason or reasons for lending money to Valuecap must be other than skillful performance.

Suppose now, the EPF wants to function like a first class investment body like Temasek. It would then be better for EPF analysts to study and evaluate a whole spectrum of investment portfolios. Temasek for example does not limit its investments on local stocks only. It scours the world market to invest in.

If really, EPF wants to make money, give better returns to depositors and make them happy, perhaps they may want to park the RM5 billion in their own equity trust fund vehicle. Sakmongkol is not sure whether EPF has an equity trust fund vehicle or not.

If it does, then better to park the RM5 billion there and then have it listed on separate bourses in the world.

But suppose, the EFF is still adamant in wanting to inject into Valuecap. Then let us examine valuecap and EPF’s performances in their investment record. Sakmongkol has summarized the following figures;


Company

At Oct 08

(in RM billion)

2007

(RM bil)

Abs.diff

% change

Value Cap

2.931

4.013

(1.08)

(27)

EPF

15.59

21.69

(6.10)

(28)

Sakmongkol just wants to know, where is the proof which can be shown by MOF2 that Valuecap has superior investment team. Look at the above numbers.

The value of valuecap’s investment fell from 4.013 billion in 2007 to RM2.9billion in 2008 which is 27%. The value of EPF’s investment fell from RM21.69 to RM15.159billion in 2008. that is 28%. The almost similar drop in their respective investment values does not support the MOF2’s confidence in Valuecap’s superiority as an investment team.

6 comments:

de minimis 25 October 2008 at 15:08  

Bro Sak

Good piece of analysis. The numbers say one thing but MOF2 says another. I say that we should trust the numbers. Solid work, bro.

Mat Salo 25 October 2008 at 18:55  

Mat Tomoi,

Excellent analysis, Sir, and to parrot de menimis, a damn well researched one.

To answer your question 'is our EPF money safe?', my answer is an emphatic no. They lost my trust a long time ago - '98 to be exact. I do put my money where my mouth is. Therefore I've been a non-contributor since '98 when I made the painful decision to seek my livelihood outside our borders. Maybe I'm poorly equipped to compete on my own turf which I find really harrowing considering my affiliations which are not at all either politically expedient or correct. So I cabut lah. At least these people in the real world don't give a hoot as to whether I'm 'bumi' (I am) or not. The important thing is my ability to respond correctly like 'how high?' when asked to 'jump' by my multinational superiors. Ironically, some of my superiors are Malaysian themselves but that never distract us from getting the job done. Sorry. I'm apt to go off tangent.

Great blog, Sir, It's original, far better than these investment analyst hacks that have got it all wrong!

Jed Yoong 25 October 2008 at 20:15  

Hey tks for clarifying with this post.
All these charts/tables with numbers gives me a headache.

Hi CT, Nice to see you here. Mr Ariff is very experienced and writes very well. ;) He is also surprisingly humble for a man like him and what more FROM UMNO! Only if more are like you and Mukhriz. Khir is ok too, a bit too macho for some. Allegedly very corrupt too but how different from other MBs?

walla 26 October 2008 at 14:51  

Possibly a smoke-and-mirror trick. Borrow money from EPF to invest in its portfolio of investments, in efect externalizing the role of the EPF without the baggage of its governance limitations. This can't be right, you know, because if it is right, EPF might as well be Valuecap, as tail wagging the dog.

And the suspicion is troubling - did anyone know anything about this company Valuecap until the announcement? The reason for the concern is this - Valuecap's future losses can be written off more easily than those of EPF whose position is more politically sensitive. That's the rub of it.

And losses they will be. If a train is going downhill with no brakes, does anyone in his right mind still expect people to buy tickets and get onboard?

The MIA opined that four times the RM5 Billion will be needed just to make an impact to shore up a free-fall bourse. Yet MOF proceeded to announce it. Doesn't it realize people can do their own sums? Looking at the list, there can't be that much allocated for each company if you're spending a fixed sum of RM5 Billion to try and plug the dyke-wall. Since everyone knows that, investors and punters will be able to work out the average amount allocated per company and then determine when the temporary support will finish. They may even make use of their intuition to play the market at the same time with view to ride the spikes for the period determined by each allocation. In order to make profit, they will have to sell - this will create a second dip bigger than the first dip wrought by external forces.

Any which way you look at it people are going to get hurt.

Better put the money to shore up those SMEs whose survival is a critical factor for multinationals to ever want to consider investing here in order to create big job pools to absorb the soon-to-happen enlarged jobless sector. Give RM5 million to each good-performing SME and you will strengthen 1,000 SMEs to save what they have built. Put RM5 Billion into the stock market and you will be left holding very expensive paper.

Once a stock goes down, it's hard for it to regain its past price when its question of fundamentals cannot be clearly answered.

In a competitive world, non-competitive monopolies such as we see in the GLCs are often viewed with scant admiration.

sakmongkol AK47 aka Mat Tomoi 26 October 2008 at 21:14  

my views too, walla.
better pump the RM5 billion into the real economy. give liquidity to sme's who actually produce goods and services.
i suspect this 5 billion injection is the brainchild of MPF2 who is besotted to the idea of gambling in the stock market. remember his losses in the forex debacle last time? he hasnt got over of being a player in the market.

ben,  28 October 2008 at 11:18  

It appears as if someone is trying to cover his arse for some boo-boo.

Read Will Valuecap throw good money after bad money by MalaysiaInsider

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