IslamicFinance.de

Malaysia’s Employees Provident Fund is allocating an initial fund size of 100 bn ringgit (US$24.64 bn) – equivalent to 14.67% of 681.71 bn ringgit in total AUM as at March 31, 2016 – to shariah investments, making the Shariah-compliant allocation the largest in the world thus far.
The move is in accordance with the EPF’s plan to roll out its shariah-compliant fund – also known as EPF-i – in January 2017. What sets the fund apart from its conventional counterpart is that the former is not exposed to banking and insurance stocks. Meanwhile, contributors are free to choose from among the two schemes.
Shahril Ridza Ridzuan, chief executive officer of EPF, says the fund has been investing in shariah-compliant assets for more than five years and about 45% of its existing total assets – worth 295 bn ringgit – already conform to Islamic principles.
In fact, prior to the launch of EPF-i, the EPF had assured investors that its investment considerations are in line with ESG practices, as it does not invest in businesses related to gambling, adult entertainment and alcohol.
With the rolling out of EPF-i, the pension fund expects its investments in shariah-compliant assets via the scheme to grow by at least 25 billion ringgit a year on average, in order to maintain a minimum investment rate of 45% in shariah assets, out of its total investments. According to Mr. Shahril, the EPF plans to adopt similar risk-return profiles and a broad, strategic asset allocation method across the two portfolios.
The pension fund also plans to launch the second tranche of the shariah-compliant scheme for its contributors, but the size of the fund has yet to be determined, and it will be subject to demand and the availability of funds.
The EPF, being the world’s seventh largest pension fund, said earlier that it is expecting about 10.38% of its 14.45 million members to convert to the new scheme, citing feedback from a public consultation exercise, in which 71% of those surveyed agreed to a shariah-compliant savings option.
Mr. Shahril had previously assured the public that there is a sufficient supply of shariah-compliant assets in the market – domestically and globally – for the EPF to invest in, adding that some 70% of equities in Malaysia are shariah-compliant