The EPF Caper

A well known blogger, Lawyer Kampung has written about his misgivings about the application of the EPF money. Recently the DPM who is also the Minister of Finance 1 announced that EPF will lend RM5 billion to one of Khazanah’s company. Value Cap Sdn Bhd.

His article has generated many comments. Unfortunately, many went off tangent as several comments degenerated into a racial blamegame. Sakmongkol will not dignify the comments by answering those bigoted hotheads.

The main issue is about the application of the EPF funds.

Let’s see.

Sakmongkol also wants to know, whether the loan application and processing were done properly like that normally and as a rule, expected from an application from the public from a bank. If the manner of applying and approving are done in a lackadaisical manner, this is a cause for concern.

Hopefully everything was done in order.

Lawyer kampung has rightly asked- where will the funds be applied to? Is this another ruse to use EPF money to save politically related counters? Valuecap is to use the money to invest in undervalued stocks and protect investments in government-owned companies.

Which leads Sakmongkol to ask; isn’t EPF is all about investing? It has its cadre of investment analysts right?- surely they too can identify the good counters. By law, EPF guarantees a return of 2.5% of our money. Based on this, EPF has not done that bad. Our principal remain intact and the returns, fortunately have been above the minimum guaranteed of 2.5%. .

The EPF applies our funds to investments in companies deemed profitable and permissible by the organization, from which dividends are banked to respective members' accounts. Alternately, members may use their EPF savings in their own investments, although such activities are not covered by the EPF and the members are to bear any losses made.

What has been the record by EPF?

year	1999	2000	2001	2002	2003	2004	2005	2006	2007
Returns(%)	6.84	6.00	5.00	4.25	4.5	4.75	5.0	5.15	5.8

Why are the returns nothing to shout about? Meaning when compared to Singapore’s temasek for example or PNB for instance. Because, the EPF claims that the lowered dividend is the result of its decision to invest in low-risk fixed revenue instruments, which produce lower returns but maintains the principal value of its members' contributions. This is due to the EPF primarily aimed at providing a stable financial security of its members. Sakmongkol has no quarrel about this conservatism

But why valuecap Sdn Bhd? Because says the government:- Govt to inject the proceeds into Valuecap Sdn Bhd to buy undervalued listed companies on portfolio basis based on superior fundamental investment research.

Which makes Sakmongkol asks another question. Why are these undervalued good buys not identified by EPF’s phalanx of analysts? Maybe because, the EPF boys being accustomed to only playing with low-risked therefore lower returns counters haven’t the smarts to dabble with the higher-risk-higher return counters. So, they need to farm out investments into these higher yielding instruments to a better outfit. But let’s disguise this farming out as a loan. Enter Valuecap Sdn Bhd.

Sakmongkol hasn’t got the data on the returns yielded by this Valuecap Sdn Bhd who by implication, MOF2 says is capable of dishing out superior fundamental investment research. Because they are brainy? Because they are Azman Mokhtar’s boys? Level 4 affiliates?

Just suppose the returns on investments by Valuecap are worse than the EPF’s in its worst year, will the government still proceed to give them the loan?