IslamicFinance.de

It would be interesting to see just how large the actual appetite is for the Employees Provident Fund’s new shariah-compliant fund, EPF-i, which does not have the minimum 2.5% annual return guarantee and is relying only on the EPF’s track record.
The demand factor from the 6.8 million active and contributing EPF members could well determine just how big a mover EPF-i will have on the local market, experts say. According to a recent survey by the EPF, 71% of members surveyed agreed there should be a shariah-compliant option for their retirement savings. And among the 71% who agree, 46.1% say they would choose to switch to a shariah fund if given the choice, 33.2% have yet to decide and the remaining 21.7% would not switch out of the conventional savings.
It is not known how much EPF savings the 46.1% have but at parity, their asset base would be about RM224 billion — double the intended initial fund size of EPF-i, which is slated to be launched in January next year. The other wild card for actual demand are the fence-sitters (see accompanying story).
For now, what is known is the choice to switch will be made available soon to all EPF members on a first-come-first-served basis and the switch to EPF-i will be in full and cannot be reversed.
EPF-i’s initial fund size is limited to about RM100 billion — about 15% of the EPF’s total investment asset of RM685 billion as at end-2015. The intended size is also about 36% of its shariah-complaint base (40% or RM274 billion of the EPF’s portfolio is shariah-complaint), which means that the EPF’s existing portfolio can be carved out to create EPF-i without the need to make additional purchases on day one.
“The EPF has been adding to its shariah-compliant assets for several years now, so I suspect that much of what it needs to invest may already be invested. However, the level of response from the public is hard to quantify, so I am sure the demand for shariah stocks will rise in the future. How much? I am not sure. The EPF awards only a small proportion of its AUM (asset under management) to external managers, so I am not privy to the amount of any additional cash,” says Gerald Ambrose, the CEO of Aberdeen Islamic Asset Management Sdn Bhd.
Jason Chong, Manulife Asset Management Services Bhd’s chief investment officer and managing director, sounds a tad more optimistic: “[The estimated fund size] would imply there should be sufficient shariah-compliant assets for the initial launch. However, given that we do not know the asset mix of the existing shariah-compliant assets, there could be some rebalancing exercise that may need to be done.”