We need to know how much income is being generated per billion ringgit invested so that meaningful comparisons can be made from quarter to quarter, says Pension Contributor.
The EPF’s latest quarterly income announcement reportedly showed a 9.2% increase in total investment income for the first quarter of 2018.
Although the figure quoted for the increase is correct, without additional explanation it gives a misleading picture as to the actual success of the increase. It may also create a false expectation ahead of the dividend announcement at the beginning of next year.
To analyse accurately, we need to separate how much of the increase is due to better performance or returns and how much is due to a higher total fund being committed or invested (as the fund size has increased due to ongoing monthly contributions).
Additional information should be disclosed: maybe the average fund size committed in the last period and in this period. Then we can see which was the main factor: was the better return due to better and skilled investments or due to a larger fund size invested, which would naturally result in a higher return.
We need to analyse how much income is being generated (net of impairment) per billion ringgit invested so that accurate and meaningful comparisons can be made from quarter to quarter.
For example, say during the first quarter, on the back of average funds invested of RM1bn, you get RM50m income and in the second quarter, on the back of an average funds invested of RM2bn, you get RM80m.
This is actually a steep reduction in investment income: although the ratio tells us investment income has increased by 60% from the first quarter, the reality is it has dropped 20% based on the size of the funds invested.
The reported income will naturally increase from quarter to quarter as more funds are invested, due to continuing contributions from members. This does not mean we will get higher dividends as time passes as the income per billion ringgit invested may be actually falling.
In all fairness, the details may be available from the full announcement but that is not the point. It should be explained next to the reported increase in investment income.
Many of the retirement/pension funds in Malaysia just report the increase in investment income compared to the previous period without explaining how the increase came about. Is it because management wants to take credit for the increase or is it just that no one thought of highlighting how it came about.
For example in this article, a retiring board member states that the asset size has increased from RM200bn in 2002 to RM750bn now as if it was all due to the hard work of the board. Most of the increase is due to monthly contributions from contributors over the last 16 years.
Another pension fund that gives out a clearer state of affairs can be found here. As you can see the fund size is mentioned and the average ROI is also shown. It is a better presentation.
Pension Contributor is the pseudonym of an Aliran reader who watches the pension funds like a hawk as his future livelihood depends on these pensions.