GLOBAL - Malaysia's first-pillar pension scheme has allocated £1bn (€1.2bn) to UK real estate in expectation of a long-term annual yield of 6-7%.

The Employees Provident Fund (EPF), believed to be worth $112bn (€88.3bn), has asked ING Real Estate Investment Management (ING REIM) and Deutsche Bank subsidiary RREEF to source real estate assets in the UK.

RREEF declined to comment, but confirmed as  "largely correct" a weekend press report claiming the scheme had awarded a mandate to invest in the UK property market.

The EPF's move - a bid to diversify outside its home market - will represent the 12m-member scheme's first indirectly invested overseas real estate.

Property currently accounts for less than 1% of the scheme's total portfolio.

Since it was set up in 1991, the EPF has failed to diversify outside its home market in any asset class.

Its global investment in equities accounts for less than 3%, for example. 

The largest allocation is to bonds (37.8%), with equities accounting for 32.4% and Malaysian government securities 23.9%.

However, EPF chairman Tan Sri Samsudin Osman has in recent months emphasised the need to diversify across asset classes to ensure members receive a guaranteed annual dividend of at least 2.5%.

The scheme posted investment returns in the first quarter of RM5.55bn (€139.2bn) - a 70% increase over the same period last year.

Tan Sri Azlan Zainol, chief executive at EPF, attributed the increase to "a more buoyant than favourable economic environment" as Malaysia "steers into making a full recovery "from the global economic and financial crisis.

Property returns in the first quarter increased by 5% to RM21.67m compared with the same period in 2009.