Malaysia State Pension Fund Investments, Including Large Purchases of European Real Estate

A recent articles shares some interesting details on the Malaysian state pension fund. For one thing they say the pension pool is the 6th largest in the world at $160 billion. I find that pretty amazing.

The article also say the fund aims to increase foreign holding to 23% (from 18% currently) within 2 years. As part of that the fund is investing in industrial property in Germany and office buildings in Paris and London and is considering buildings in New York City. 70% of Singapore’s sovereign wealth fund, Temasek, is invested overseas (it stands at $170 billion, just ahead of Malaysia).

The current distribution of the Malaysian portfolio is: 55% bonds, 35% equity, 5% in real estate and 5% unspecified.

Mandatory deposit into the fund of nearly a quarter of Malaysians’ salaries (by the employee and employer) have build up the large investments in the fund.

It is somewhat ironic that Malaysia is simultaneously encouraging others to invest in Malaysia and choosing to invest retirement assets outside Malaysia (due to high valuations and low yields in Malaysia). While it is ironic, I think it also makes sense. There is great potential for land in Malaysia so investors seeking to capitalize of potential could make wise decisions to invest in Malaysia. And it makes sense to diversify investments for Malaysia retirement funds.

Malaysia pension fund to spend 500 million euros on German, French properties

German industrial land is a third of the price of comparable areas in Malaysia, where speculation has driven up prices sharply.

The EPF’s move to diversify its investments and secure higher payouts comes as Malaysia’s government grows concerned its citizens are not saving enough for their retirement, with 70 percent of retirees exhausting their EPF funds within 10 years of leaving the workforce.

I am a bit confused (I don’t have enough details) by the conflict between 25% saving rate and using up retirement funds in 10 years. The most sensible way to reconcile these seemingly odd statement would be to guess that the fund was only “recently” established. If you save 25% of your salary for 40 years you should have a very good retirement income. If you only saved for 10 years that would be a problem. Also if you saved 5% for 30 years and 25% for 5 years before retirement that would be a problem.

Related: Investing in Palm Oil PlantationsSingapore and Iskandar MalaysiaThe Potential of Iskandar is Very High but Investing in Iskandar has RisksHow Much of Current Income to Save for RetirementMalaysian Residence Pass for Skilled ProfessionalsIskandar Housing Real Estate Investment ConsiderationsSaving for Retirement

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