Business

Saturday November 21, 2009

Who’s been managing our money for 10 months?

SIDEWAYS
By ANITA GABRIEL


COULD it be possible that during the most perilous investing period this year, the Employees Provident Fund (EPF), the keeper of the people’s (some 12 million of them) retirement savings did not have a top money man?

If you visit the EPF’s official website and view its organisation chart as at February this year, you’ll get the answer. The field for the post of deputy chief executive officer of investment (or chief investment officer as the fund management industry calls it) who reports directly to the CEO Tan Sri Azlan Zainol reads kosong (empty). Based on the chart, the man who used to hold that position, Johari Muid, is now deputy CEO of policy and corporate planning.

For the country’s biggest money pot, with over RM350bil, the first quarter was particularly challenging given the battered and volatile equity markets, low interest rate environment and a bond market haunted by regulatory risks. But there were many markets in other parts of the world which had suffered even more on the back of the devastating global economic crisis.

Still, there’s no need to panic. For the second quarter of the year, as the investment climate began to cheer up, so did EPF’s investment returns. Investment income over that period rose 47% and 18% on a quarterly and yearly basis respectively.

That’s not to say the role of CIO for a fund as enormous as EPF ought to be underestimated, this despite the fact it has an investment panel and committee, and heads in various investment classes namely equities, corporate loans, real estate, private equity and money market who meet, reportedly, on a weekly basis.

In a nutshell – a CIO makes critical decisions on asset and risk management and designs investment processes and strategies (this is dynamic and could change depending on the general climate and opportunities) to create a balanced investment portfolio, all in the name of capital preservation and good returns. For sure, he doesn’t act in isolation.

Some argue that EPF’s long-standing investment strategy is highly structured (dictated by a defined tactical asset allocation and the EPF Act) and therefore, it may not be unthinkable that it has made it without a CIO for this long.

But where is the check and balance for an organisation that is not by any stretch of the imagination, petite? Who oversees all the numerous heads (11 under the investment division) of the various departments? Wouldn’t they then have to report to the CEO in the absence of their deputy CEO (clearly not an effective reporting hierarchy)?

Moreover, how is it that such a hefty fund has no clear and smooth transition plan for a spot deemed as pivotal as that of the CIO?

Equally vexing is that when Johari was appointed to his new post, leaving the position of deputy CEO of investment vacant, there was nothing official on that, unless of course you happen to stumble upon the information on the website. The news broke out months later as a result of tongues wagging. Speculation is fodder that thrives in an information vacuum.

Over the week, the EPF issued a statement (hardly a secret by then) that Shahril Ridza Ridzuan, group managing director of property and construction group Malaysian Resources Corp Bhd will fill the long-vacant seat of deputy CEO of Investments effective Dec 1.

Clearly, the fund is at the crossroads – how to boost investment returns (over and above its plain vanilla asset classes in which a bulk of its money is ploughed into) while preserving capital. As it stands, a bulk of its investment is snuggled in Malaysian Government debt papers and loans and bonds (almost 70%) which may be low risk, but could also mean concentrated risk.

Not many expect Shahril to bring whole sale changes to the fund’s investment policies. It’s not easy to veer off the fund’s strict investing parameters. No doubt, his extensive experience in property will add value, as real estate is always a good choice for a diversified portfolio. On the other hand, his far less specialised experience in investment management would be tested if the fund’s portfolio is under stress.

But, wait a minute – wasn’t the fund already under stress this year and that too, without an investment steward?

Business editor Anita Gabriel doesn’t like it when organisations, in which the public are stakeholders, do not take the high road in disclosing pertinent information.

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