LBO - The EPF as of late has not been proven to be the most savvy investor, but with one of its biggest moves in the stock market 6 years ago, the provident fund clearly made the right choice.
Early in 2012, Sri Lanka’s largest provident fund sold an 8.4% stake in John Keells Holdings (JKH) to the Malaysian sovereign fund Khazanah for Rs13.7bn. This was a blockbuster deal at the time, and many analysts were critical that the shares were sold at too low a price.
Over the past 6 years, JKH has had complicated adjustments to its share count due to rights issues, warrant issues, and sub division of shares. When all these events are taken into account, EPF could likely buy the shares it sold back at a similar price 6 years later. During that 6 years, it is likely that the EPF has earned close to a 100% return with its investments in fixed income.
Stock brokers in Colombo are constantly lobbying the state institutions (of which EPF is the largest) to invest more money into the stock market. However, these arguments made by brokers who will benefit financially from the EPF investments into the stock market, have for the most part fallen on deaf ears. For those Sri Lankan’s who hold their savings in the EPF, this has been a blessing as investments into the stock market would have likely drastically underperformed fixed income over the corresponding period. The Central bank has not provided analysis of how its investments in the stock market have performed relative to fixed income over long time periods. Thus, EPF holders are left in the dark when trying to evaluate the management of their funds.
This begs the question…. Why is the EPF investing in the stock market at all?
Early in 2012, Sri Lanka’s largest provident fund sold an 8.4% stake in John Keells Holdings (JKH) to the Malaysian sovereign fund Khazanah for Rs13.7bn. This was a blockbuster deal at the time, and many analysts were critical that the shares were sold at too low a price.
Over the past 6 years, JKH has had complicated adjustments to its share count due to rights issues, warrant issues, and sub division of shares. When all these events are taken into account, EPF could likely buy the shares it sold back at a similar price 6 years later. During that 6 years, it is likely that the EPF has earned close to a 100% return with its investments in fixed income.
Stock brokers in Colombo are constantly lobbying the state institutions (of which EPF is the largest) to invest more money into the stock market. However, these arguments made by brokers who will benefit financially from the EPF investments into the stock market, have for the most part fallen on deaf ears. For those Sri Lankan’s who hold their savings in the EPF, this has been a blessing as investments into the stock market would have likely drastically underperformed fixed income over the corresponding period. The Central bank has not provided analysis of how its investments in the stock market have performed relative to fixed income over long time periods. Thus, EPF holders are left in the dark when trying to evaluate the management of their funds.
This begs the question…. Why is the EPF investing in the stock market at all?
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