KUALA LUMPUR: The Employees Provident Fundâ€™s (EPF) syariah-compliant investment product, called â€œSimpanan Syariahâ€, will have an initial size of RM100bil and be open for registration from Aug 8.
Contributors can start registering with the pension fund to shift their savings to Simpanan Syariah and it is open to all members regardless of race, religion and nationality. The registration will close on Dec 23.
EPF chief executive officer Datuk Shahril Ridza Ridzuan said the fund has been investing in syariah-compliant assets for more than five years and about 45% or RM295bil of existing total assets are already syariah-compliant. He expects the EPFâ€™s investment in syariah-compliant assets to grow by about RM25bil a year on average.
â€œThe EPF will not be 100% syariah-compliant. The reason for this is given the size of the EPF.
â€œThe EPF grows every year in terms of new contributions. It is quite impractical to be 100% syariah-compliant and move away from the strategic objective of giving contributors a choice,â€ he told reporters at a briefing on the EPFâ€™s new syariah-compliant investment scheme yesterday.
The main difference between the conventional fund and the syariah-compliant fund is that the latter cannot invest in banks and insurance companies.
Towards this end, Shahril said that the EPF would not be scaling down on its investments in conventional banks and insurance companies even with the existence of the Simpanan Syariah, and said that it has been preparing for this in the past four years.
â€œThere is ample room for us to hold on to the banking shares, and banks provide a good proxy to the gross domestic product growth.
â€œSimpanan Syariah will invest in Islamic banking and takaful insurers,â€ he said.
Shahril said that not being able to invest in conventional banks was not an issue for Simpanan Syariah, as there are a lot of syariah-compliant stocks on Bursa Malaysia.
â€œIf you notice the volume on Bursa, the banks form a substantial portion of it. But there are also the syariah-compliant stocks as well. And if you look at the Bursa components, the large majority of components are syariah-compliant already. So, it is not so much of an issue,â€ he said.
On the question of which fund would generate higher returns, Shahril said that dividends would always be different for the two funds in any given year.
â€œOur goal is to target the same returns in the long term across both portfolios. So, you should expect similar long-term returns, but will not see the same dividends in any given year,â€ he said.
The best way to anticipate the difference, he said, was based on the higher weightage on financial stocks in the conventional fund scheme. This, he said, was particularly so because financial stocks were a proxy to economic growth.
â€œSo, this is the main differentiator between the conventional and syariah portfolios,â€ he added.
Shahril had said previously that over the long term, the difference in return between the two funds was expected to be 0.5% or 50 basis points. The RM100bil fund size that the EPF would allocate for its Simpanan Syariah would be 15% of the pension fundâ€™s total size of RM681.7bil.
â€œPart of the reason why the sizing of the Simpanan Syariah is at RM100bil despite the EPF being RM700bil in total asset size is partly to make sure we can have the same risk-return profile and the same broad strategic asset allocation across the two portfolios.
â€œIf the syariah fund is too big, we will have an issue in terms of having enough assets in certain asset classes that can give us the same kind of risk returns spread over the long term,â€ he said.
The EPF will have a second tranche of the syariah-compliant scheme for its contributors, but the size of the fund has not been determined yet.
â€œWe will determine the size in 2017 once we know the demand and availability of funds,â€ Shahril said.
On the question of whether the initial sum of RM100bil was to small, Shahril said that it was more than ample to provide diversification and yet be manageable.
Shahril also dismissed any notion that the creation of the new fund would have an impact on the existing fund.
â€œIt is not that we are creating RM100bil. That money is already existing. We are segregating a sum for the purpose of Simpanan Syariah. So, there is no impact because this money is already invested.
â€œWe are just spurring the creation of a pool of long-term assets,â€ he said.