The Star Online > Business
Thursday August 25, 2011
EPF seeks prime assets
Its move to invest in UK properties is interesting and relevant
Behind The News - By Thean Lee Cheng
THE global economy is undergoing tremendous changes. There is much to be made, with sound and well-calculated judgement; and much to be lost, if prudence is missing. About a year ago, the Employees' Provident Fund (EPF) issued a statement that it was going to invest about 1bil (RM4.88bil) in British real estate.
It appointed ING Real Estate Investment and Deutsche Bank's property investment arm, RREEF, to manage the investment, each getting 500mil to buy into the European property markets, focusing on the United Kingdom.
In just about 12 months after that statement was issued, the pensions fund has accumulated four premium properties in the city of London. All four purchases were previously owned by property investment funds, one of them held by a consortium with members on both sides of the Atlantic.
Its latest purchase was concluded on Aug 11 when it added 11-12 St James Square, another venerable address in the West End, to its London portfolio of assets. It also said it was looking for other assets to buy and a whiff of this was in the air when word got out that another two properties are on the cards. EPF has yet to confirm these two new purchases.
However, it has been reported that the purchase of Tower Bridge House, E1, an 185,000 sq ft office block, might be concluded directly with Credit Suisse Asset Management's German open-ended fund CS Euroreal, and not via EPF's two appointed consultants, ING Real Estate Investment and RREEF. If EPF does seal the deal, it will represent one of the largest off-market deals this summer in Britain. An off-market deals means there are no signages posted to publicly indicate that the property is for sale. It is exclusively and privately concluded.
The other property is reportedly a distribution centre outside London, belonging to British supermarket chain Sainsbury's for 80mil (RM392.22mil).
EPF's new direction to invest in overseas properties is both interesting and relevant to many Malaysians.
First of all, the fund is supposed to act in the interest of 12.72 million employees, who channel a portion of their salary as EPF contribution every month. These “investors” (meaning all of us who are employed) will want to know how their monies are invested.
As at March this year, property investment only constituted RM1.84bil (or 0.41%) out of a total investments of RM450.26bil. By comparison, equities constitute 35.55%, or RM160.06bil.
As the United States, Britain and the European Union wade through troubled waters, it is very likely that more property funds will be releasing very prime properties for sale, not only in London, but across the Atlantic and in Australia.
As a source in the private sector says: “Now is the time to pick up some of these prime assets in the Western world.”
This is obviously not lost on the EPF and many who have invested in the residential sector.
EPF's interest in UK may be due to a couple of factors, the currency exchange, which is in our favour, for one. The Australian dollar is comparatively strong today, while the sterling is hovering below RM5 to a pound. At its height, it was trading at about RM7 to a pound. As the European Union go through this painful period, Britain will be very much affected by it although it has continued to hang on to its currency. The pound may depreciate further so the issue of currency gains (or loss) is a double-edged sword.
The other attraction: London is a financial centre that goes back many decades. Although a bit of that financial glitter has dimmed because of its current troubles, there is an overall sense of confidence that it will bounce back. Hence, the interest in British assets today although that recent riot which started in Tottenham is a blip.
The EPF does have vast resources, simply because every month, millions of us add to our total contributions in the fund. These monies have to go somewhere, instead of being confined within Malaysian borders.
One of the reasons there is so much interest is that property funds are liquidating. It could be a closed-end fund, or an open-ended one.
Unlike the limited range of investment opportunities in Malaysia, property funds have over the years proven to be popular in the West, as they offer reasonable returns with little volatility. But the global downturn of the last several years have brought that to a halt.
These funds were run by large insurance and investment companies that pool the monies of investors to enable a fund manager to purchase a variety of commercial properties such as office blocks, retail units and warehouses.
When the economy was good, there was more money being invested in these funds than there were people cashing out. Fund managers, therefore, have no problems holding on to these property investments over the longer term. But when investors became nervous, they are likely to withdraw or cash out.
Because the current credit crunch is expected to continue for some time, there may be more liquidation ahead. While all this is happening, the prices of London properties began to improve in the second quarter of 2009, while the rest of Britain property market continue to languish.
Incidentally, if one were to check the EPF website, among the maze of frequently asked questions is this innocuous one:
“Can EPF invest overseas?”
The answer? “No. EPF can only do so with the approval of the Ministry of Finance. To date, EPF has not been granted the permission to invest overseas.” Ummh, somebody may need to update that.
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Aug 24 2011, 10:28 AM
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but the very first reserved price is almost the minimum range of MV.
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