Euromoney, April 2018
The Employees Provident Fund (EPF) matters.
It is not just that, with RM768.51 billion ($196.6 billion) under management as at December 31, 2017, it is one of the biggest pension funds in the region.
Nor that, with assets equivalent to more than half of the Malaysia Stock Exchange’s market capitalization, it is uncommonly powerful in its own country. Nor even that it is a vital sign of well-run institutional stability in a country where the political environment seems more of a circus by the day.
No, the broader significance of the EPF is what it tells us about the potential for Islamic finance in national pension and sovereign funds.
Few sovereign or pension vehicles in the Islamic world, from the UAE’s and Qatar’s sovereign wealth funds to Saudi Arabia’s central bank, are actually invested along Shariah principles, despite those countries having far stricter interpretations of Islam than Malaysia does. But the EPF, which now runs a Shariah-only stream of its main fund and has boosted Shariah compliance across all its assets, tells us a lot about the practicality of Shariah investment on this scale and about the crossover between Islamic finance and the environmental, social and corporate governance (ESG) world.
It is being closely watched by peers across the Islamic and conventional investment world – partly for its investment and partly for the enormous impact it has had on the development of Islamic asset management across the whole country. In February, the EPF declared its dividends for the year, for the first time in two separate streams: a 100% Islamic scheme and another that is conventional but derives 38% from Shariah-compliant sources.
“It’s been a fairly long journey,” Datuk Shahril Ridza Ridzuan, chief executive of the Employees Provident Fund, tells Euromoney in the institution’s Kuala Lumpur headquarters not far from Masjid Negara, the national mosque.
“I joined the EPF in 2009 as CIO. Even then it was quite obvious there was strong demand from the membership for a fully Shariah-compliant fund.” What is instructive is the approach the EPF took in getting there. Its starting point was not religious compliance but ethical investment.