A $112bn sovereign wealth fund that invests the savings of 12.3 million Malaysian workers has launched a £1bn property spending spree as Far East money streams into the UK.
Malaysia's Employees Provident Fund (EPF) – the bedrock of the South-east Asian country's pension sector – has hired ING Real Estate Investment Management and RREEF to advise it on assembling a major European real-estate portfolio.
It has awarded the global fund managers a mandate to invest £500m of equity each in property markets across Europe, although the UK is its primary focus.
This move is thought to be part of a wider strategy by EPF to diversify its asset base and increase its holdings outside Malaysia. It will also mark EPF's first significant entry into direct property acquisitions outside its home country.
EPF was set up in 1991 as a social-security institution where private and public-sector employees, with employer participation, contribute around 20 per cent of their salaries to the fund. These savings are then managed to provide retirement and other benefits and a guaranteed 2.5 per cent annual dividend.
The fund is headquartered in Kuala Lumpur, one of the financial power hubs in the Asia Pacific region, and currently invests in Malaysian government securities, money-market instruments, loans and bonds, and equity, as well as its domestic property market.
It is not thought to have invested significantly overseas and its global equities investments to date account for around 2.5 per cent of its total assets. Any foreign investments have to be approved by Malaysia's Ministry of Finance.
For the past two decades, EPF has seen almost continual growth. However Malaysia, like its neighbour Singapore and other countries with ageing populations and rising medical costs, is putting in place measures to ensure it can manage its future obligations. It has been making changes to its contributions structure since 2008 in a process known as the "Beyond Savings" initiative. This is thought to be its latest diversification.
ING, one of the world's biggest fund managers, and RREEF, the property fund management arm of Deutsche Bank, declined to comment.
EPF is the latest to join the queue of Asian money looking for a home in Europe. South Korea's National Pension Service Fund, the world's fifth-largest pension-fund manager, has spent well over £1bn in the UK, including the purchase of a stake in Gatwick Airport in February.
SSI, Thailand's largest steel company, signed a memorandum of understanding on Friday to buy Corus's Redcar steel plant for £320m. The deal could see steel production begin again at the plant next year. The Korea National Oil Corporation has made a £1.87bn hostile bid to buy the Aberdeen oil company Dana Petroleum.
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