EPF looks for bargains in Sri Lankan stocks with trade union approval

ECONOMYNEXT- The Employees' Provident Fund, Sri Lanka's largest retirement fund with 2 trillion rupees in assets under management, is looking for bargain sales in shares listed on the Colombo Stock Exchange as government securities become scarce over the coming years, the Central Bank governor said.

"In the future the government domestic funding requirement will get lower. The domestic repayment is peaking at 980 billion rupees this year, 600 billion rupees next year. After that it's 500 or 400 billion rupees," Indrajit Coomaraswamy told reporters at the October Monetary Policy briefing.

"Then the opportunity for the EPF to invest in government securities becomes less and the fund is becoming bigger. Then we need to find other opportunities," he said.

The EPF department is currently observing the stock market to find the best bargains, Coomaraswamy said.

"This is a buying opportunity. There's a fire sale of corporate Sri Lanka at the moment. The Investment Committee will look at this," he said.

"Some trade unions have said that they don't like this. We will meet with them and discuss," he said.

"We will explain to them the safeguards taken to protect the funds. Only if they agree will the Monetary Board go ahead."

Trade and investment guidelines have been agreed upon as preparation for the EPF becoming more active in the stock market, he said.

Trade and investment guidelines for EPF assets are regularly revised, with the last revision happening in 2014.

He said under the agreed guidelines, the Investment Committee will make a list of potential shares to buy with support from the Colombo Stock Exchange and the Securities and Exchange Commission, and forward it to the Monetary Board for approval.

Going forward, the EPF will not be able to deviate from this list. It will be restricted from buying other listed shares or unlisted shares, Coomaraswamy said.

"One trader can't go and make traders like in the past. There will be CCTVs, voice records and training given to officials," he said.

The 2014 guideline had not distinguished between listed and unlisted investments.

"The Monetary Board has the discretion to invest in… shares and debt instruments issued by private corporates, which are considered fit by the monetary board," the document said.

EPF investments in listed shares are unlikely to go above 5 percent of the total portfolio, Coomaraswamy said.

Even this would be a doubling of the fund's exposure to listed shares, as Coomaraswamy said the current investment in the stock market is around 2.5 percent of the portfolio.

The EPF has been quiet in the stock market since 2016, when the fund made sales in blue chip shares, which then governor Arjuna Mahendran had attributed to a need to boost liquidity in the fund, as members were given a new option to refund part of their savings to finance housing.

Major acquisitions of shares had not taken place since the current government came into power in 2015.

The fund would exit non-performing private equity investments when chances arise, Coomaraswamy said.

"We need to wait till the market recovers a little bit," he said.

"The investment committee will look at this, if there are worthwhile exits. We have to see if there is a buyer also to buy some of this."

A right to information disclosure from the central bank this February showed that the fund is holding on to 10.8 billion rupees in private equity investments, made during the period from 2010 to 2015, of which 9.3 billion rupees in investments had made no returns.

The 2014 guidelines say that the EPF is to consider investments in foreign instruments.

"We have to walk before we can run. We have to get into the local market first," Coomaraswamy said, when asked whether the Central Bank has any overseas investments lined up, or whether the new guidelines will allow the EPF the same opportunity to invest in foreign assets.

The EPF has managed to give returns of over 10 percent for its members in the past. (Colombo/Oct03/2018)

Thanks Nihal.

Thanks Nihal.
Hope current officials will be in the office when the proposal gets the nod.