CSE1 wrote:Wednesday, June 29, 2011
EPF portfolio Rs 924 b by May 2011
Investments in corporate debt securities soon :
The Employees Provident Fund (EPF) has an astronomical Rs 924 billion in its investment portfolio by end May 2011. Of the total investment portfolio of Rs 924 billion as at May 31, 2011, the Fund has invested Rs 856 billion in Treasury Bills and other government securities, accounting for 92.7% of the total portfolio, Central Bank’s EPF Superintendent Rupa Dheerasinghe told Daily News Business yesterday.
Of the remaining investments, there is Rs 57.28 billion or 6.2% of the total portfolio which is invested in listed and unlisted equities of which there is Rs 53 billion which accounts for 5.5% of the total portfolio in listed equities while the investment portfolio in unlisted equities is Rs 7.1 billion or 0.7% There is also 0.5% or Rs 4.62 billion invested in Reverse Repo.
“She said that the Fund was managing the monies of the people and was extremely vigilant in the manner of making the investments being acutely conscious of the security of the people some of whom have their lifetime’s savings in the EPF. “We are safeguarding the interests of the EPF members while giving them the best possible returns. We made an overall return of 15% for all our investments, she said.
“We are extremely careful when making the investments and our decisions are made by a fully-fledged team of Fund Managers who are acutely conscious of the market developments and fluctuations and their decisions are backed scientifically,” she said.
source - www.dailynews.lk
EPF's total investment portfolio is Rs 924 billion
The overall return for EPF is 15%.
Rs 856 billion or 92.7% has been invested in government securities which are zero risk but very low return (in last year, about 7%-9%p.a.).
Total investment in equity 6.2% or Rs. 57.28 B
Will do a simple math ..... (I may be wrong)
Total return Rs. 924 B X 15% = 138.6 B
Approx return from govt securities Rs. 856 B X 9% = 77.04 B
Approx return from govt securities (RGS) Rs. 856 B X 10% (optimistically) = 85.6 B
Therefore, the balance Rs. 61.56 B came from equity investments of Rs. 57.28 B (or 53 B at 10% RGS)
then the return on equity investment should be;
@RGS 9%-------61.56 B / 57.28 B = 107.5%
@RGS 10%------53 B / 57.28 B = 91.7%
I noticed some of the forum members mentioned above that return on EPF's investment portfolio is only 4%
, Can it be possible??
But, my calculations may be inncorrect as EPF's total return may include large amount of unrealized gains and we don't know how many years EPF already held those securities/shares (as time of investment is critical for this calculation), but I don't think actual return is as low as 4%.
Most of us does not aware of 30% investment in Colombo Port Project. But, I heared there was a bid filed by SPEN with Singapore Port for Colombo South Port Development Project. No any idea whether it awarded to SPEN/Singapore Port or not. Also not aware of equity protion of SPEN in the venture. So, if you have any information in that regard, please share with us.
Very good post broadening our view. Well Done. Also thanks to Academic, Think9, FactFinder for a good discussion without insults which I always appreciate.
Further to above facts I would like to add the below . Let me start by saying Long term vs Short term mind set is/ can be different. If you think Optimal and Short term as operative words then we can raise questions about their strategy.
1) In general EPF has not let us down over the years for some of us who benefited from it. Their annual return has been decent and during difficult time for which I am happy as I do not expect miracle returns form a fund like them. The question is what is the "Expectation" of a general EPF beneficiary who is not exposed to Stock Markets or the trends or their internal workings? Is EPF somehow meeting that expectations by balancing their overall returns ( not only selected equity buys)?
2) Yes EPF has made a few not optimal investments in short term ( not buying at the right time .
But we need to remember
i) for Long Term
funds like EPF they do not have to dispose what they bought now. They can hold
until desired return is met maybe in 5 years. This is different to a Retailer mind set. [/b] They also
have bought stocks at lower prices which they can dispose now for profit. Long term mind set,
holding and disposal strategy is different. It may not be optimal in short term.
- When spen was trading around RS 300 in 2009 ( much before 1 to 15 split) maybe some thought
for prevailing market situation
it was overvalued and maybe there were better shares to
invest. I reiterate we need to look from the mentality at that time not now. But if one bought at that
time for long term holding they could have disposed at 8-10 gain in 2010. ( I understand 2010 was
an exception but this is an example only)
Now if one bought SPEN at Rs 600 then they can ask why did you buy at Rs 600 when you could
have bought for Rs 300.
In the long term solid companies tend to pay off. ( depend on holding power) . For short term it looks
like a bad move if you only look at percentage gains, fundamental analysis and trends.
The real question is can someone say buying share at RS 230 now is a bad move in 5 years time?
Will there is a huge difference of Rs 90 ( Rs 140 vs Rs 230 which I agree is a large dip due to fundamental)
if the gain will be multiple times than that ? ( I am not saying it will happen but saying it could looking at past history patterns)
Another opposite example : Rememebr when SLIC sold CFIN for Rs 800 recently ? Some asked why do
they have to sell a undervalued share at that price. Answer : They bought long ago at much chepaer
prices and sold with significant gains after it satifies their strategy. No one will ask now, did they
buy CFIN overvalued when they purchased then.? People will say now oh they bough cheap.
ii) EPF seems to act sometimes in rescue missions in difficult market times. So from time to time
when they buy they would not get the best price or best from retailer point of view who has more flexibility.
Also negotiating and buying large quantities can require premium as opposed to buying from retail
But due to their long term long holding, averaging and disposing plan as I mentioned in i)
it appears to offset somehow.
iii) We also do not know about their cash availabilty/release periods. Someone said "best time to invest is
when some has money to invest"! (Ofcourse the circular question arises why do you buy a overvlaued share with that money?)
3) Also note
"Of the total investment portfolio of Rs 924 billion as at May 31, 2011"
- the Fund has invested Rs 856 billion in Treasury Bills and other government securities, 92.7%
- Rs 57.28 billion or 6.2% of the total portfolio which is invested in listed and unlisted equities
- 0.5% or Rs 4.62 billion invested in Reverse Repo.
With a claimed return of 15% and over 93% attributed to lesser risk investments we need to look at overall performance and and not isolate only the equity component. Somehow they seems to be balancing their return. Cannot say they are bad managers. We comments on Equity as we are knowledagle. But what about the overall management?
In summary :
Some people can again counter argue to what I said , isn;t it better to buy at Rs130 than RS 230 knowing it is overvalued. it is waste of public money. But large funds as EPF can act differently with different approaches than us. If still you say it is a waste now think say 5 years from now ? Can we say it will be bad investment ?
One thing I agree is that EPF should disclose more about their strategies ( not everything but enough for the public to get an understanding) as it is a Public Fund. Maybe it would clear this matter more than keeping it secret.