Malaysia's EPF eyes real assets growth for stability

Malaysia’s Employees Provident Fund (EPF) has been riding the wave of the global equity boom, but the RM1.54trn (€328bn) retirement fund is mindful that the good times cannot last indefinitely. Having reported a 48% surge in investment income in the first half of this year, EPF has taken advantage of buoyant markets to realise gains while seeking more stable, long-term income streams from infrastructure and real estate.

EPF has recovered strongly from the high withdrawals permitted during the COVID-19 pandemic. Assets under management have risen by more than 50% from RM1trn, supported by robust contribution inflows and investment returns.

While the fund continues to benefit from strong global equity markets, its CIO, Mohamad Hafiz Kassim, has been conscious of the risks inherent in listed equities, in particular in the highly concentrated and outperforming technology sector. EPF has taken advantage of favourable market conditions to realise investment gains earlier in the year, anticipating the possibility of greater volatility in the second half.

Established in 1951, EPF is one of the world’s oldest retirement funds and among the largest in Asia. Its strategic asset allocation reflects a dual mandate: generating attractive risk-adjusted total returns while ensuring realised investment income to support annual dividend payments to its 18m-plus members.

That philosophy is shaping EPF’s approach to real assets, from recycling capital out of mature UK property investments to seeking opportunities in the US, and expanding selectively into student housing, logistics, data centres and residential.

For Kassim, it is a balancing act. “Our risk appetite ultimately is about stability and consistency of income, and downside protection whilst generating attractive total return,” he says, sitting in EPF’s offices in Kuala Lumpur.

Under its governing legislation, EPF is required to declare a minimum annual dividend of 2.5%. Unlike institutional investors focused primarily on total returns, it must balance income from fixed-income securities and dividend-paying equities with realised capital gains, while ensuring that distributions remain sustainable.

EPF was among the first Asian pension funds to invest directly in overseas property, but real assets have historically played a supporting role to its much larger fixed-income and equity portfolios, which each account for slightly more than 40% of total assets. Private equity, real estate and infrastructure each represent roughly 3%.

Kassim, who joined EPF in 2008, has first-hand knowledge of property investment, having spent two years running the fund’s wholly owned property development subsidiary, Kwasa Land, before returning as chief financial officer in 2021.

“Real assets is an asset class that we would like to grow… not for the sake of growing, but finding the right sector and the right partner”

“Real assets is an asset class that we would like to grow. What we have to ensure is not grow for the sake of growing, but also finding the right sector and the right partner,” he says.

EPF has been rebalancing its property portfolio, progressively realising gains from mature investments, particularly legacy assets in the UK. The fund entered the UK property market more than two decades ago.

Its most prominent investment is the redevelopment of Battersea Power Station, undertaken by a Malaysian consortium comprising Sime Darby Property (40%), SP Setia (40%) and EPF (20%). The massive urban regeneration project, with an estimated completed value of around £9bn (€10.7bn), is expected to be finished in 2033.

Over the years, EPF has sold central London office properties, including assets at St James’s Square and One Sheldon Square. Kassim says the fund is deliberately reducing some of its UK exposure as it seeks greater diversification.

The strategy is not simply about reducing geographic concentration, but also about maintaining the discipline to sell when an investment has achieved its targeted returns and redeploy the proceeds into opportunities offering better prospects. Kassim says investors should avoid “falling in love with the asset”, particularly when another investor may be able to generate better returns from it.

The US is one market where EPF sees scope to increase its real assets exposure. Although the fund has substantial experience investing in US listed equities, its direct exposure to American real estate remains relatively limited compared with its holdings in the UK and Australia.

Kassim points to the Foreign Investment in Real Property Tax Act, which creates tax and structuring considerations for foreign investors. Unlike the UK, where EPF can own an asset outright, the fund has generally accessed US real estate through investment funds and co-investments with established managers.

He says EPF will continue to work with managers that have demonstrated strong investment performance, an ability to anticipate sectoral trends and expertise in asset and property management. “When things are doing well, it’s fantastic – you bring great returns. When there are challenges – and that will come for sure – we found that managers who have strong asset management and property management skills tend to outperform in the long term.”

Digital infrastructure and airports

EPF entered Australia more than a decade ago and established what is now a longstanding relationship with Sydney-based Goodman Group. The partnership began with developing modern logistics facilities in Melbourne and Sydney and has evolved towards infill industrial assets and potentially data centres as Goodman expands its exposure to digital infrastructure.

“It’s a progression,” Kassim says. “Goodman is a partner that we like to work with. It has a very strong reputation, and we are always open to work with partners with such credibility.”

EPF has also ventured into data centres in its domestic market, partnering with Sime Darby Property as the Malaysian developer expands its industrial platform into digital infrastructure. It is a cornerstone investor in Sime Darby’s New Economy Fund, targeting logistics and data centre projects.

EPF joined a consortium with BlackRock’s Global Infrastructure Partners (GIP) to take private Malaysian Airports in a RM18.3bn transaction in 2025. Having already invested in GIP-managed funds, Kassim says that relationship gave EPF valuable insight into GIP’s investment approach, operational expertise and ability to create value. Malaysia Airports operates 39 airports in Malaysia, including five international airports, as well as Istanbul Sabiha Gökçen International Airport in Turkey.

Kassim says the attraction of airports lies first in the durability of their underlying income streams, supported by passenger traffic, airline activity and long-term growth. Beyond aeronautical revenue, opportunities exist to enhance returns through retail operations, better access, capacity expansion and more efficient capital expenditure.

EPF already has airport investments in Europe through co-investments with external managers, and Kassim says it remains open to further opportunities. “Given our experience in the sector, and if we have the right partner, we are always open to opportunities to invest in the sector.”

The fund is also a major investor in Malaysian toll roads, including a 49% stake in PLUS Malaysia, the country’s largest toll-road operator, and a 40% holding in DUKE.

More than 60% of EPF’s current portfolio remains invested in Malaysia, with overseas investments accounting for approximately 35% to 39%, depending on market movements. As the country’s largest retirement savings institution, EPF is an important source of domestic investment capital and participates in Malaysia’s Government-Linked Enterprises Activation and Reform Programme alongside other major Malaysian institutional investors to invest in projects which create jobs and generate growth. Kassim emphasises, however, that EPF members’ interests remain paramount in every investment decision.