Q&A: Employee Provident Fund's Datuk Shahril Ridza Ridzuan

Q: As of year-end 2012, your allocation to PE was less than 1% of total assets. How has the program grown and how do you expect it to grow?

A: The EPF has been involved in emerging markets private equity funds since 2005. In the last three years we have increased our involvement in develop markets through separate account programs. We continue to make commitments to funds in both developed and emerging markets. In addition to that, we continue to seek out and invest directly in opportunities in the Malaysian buy-out space. Accordingly, the total allocation to private equity is growing and will allow us to reach our target of 2% under our strategic asset allocation.

Q: How has the private equity portfolio performed in terms of strategy and geography?

A: We are satisfied with the performance of our PE program despite the fairly short track record, particularly in the developed markets space. We have benefited from timing our entries during a period when liquidity and demand for private equity was lower than normal as a result of the last financial crises. The EPF has, however, noticed that there is a significant dispersion of performance in the emerging markets space. We believe that identifying suitable emerging market fund managers continues to be the most challenging aspect given the relative immaturity of the space and the funds operating there. Our experience has taught us to pay more attention to a private equity firm's key attributes such as track record, alignment of interests and the cohesiveness of the management team, before making any commitment.

Q: How do you see your geographical exposure developing? Are you and do you want to continue to be Malaysia and Southeast Asia heavy?

A: The EPF initially focused on Malaysia and Southeast Asia due to familiarity. In the past few years however, we have extended our private equity investments to include North Asia, Western Europe, North America and Latin America. We will continue to invest in developed markets, given the liquidity and maturity of these markets. The Malaysian market would be more of an opportunistic play, leading to opportunities for direct and co-investment deals. We believe that there is still growth in Southeast Asia, and Malaysia particularly, and will continue to work with our partners to identify clear opportunities for investment.

Q: To what extent do you use third-party advisors or managers to help with allocations?

A: The EPF's investment strategy as a whole is governed by its strategic asset allocation (SAA), which was developed in house with advice from global pension and social security consultants. In addition, we have engaged an advisor to specifically work with us on our allocations for non-publicly traded assets within the context of the SAA. For private equity fund investments, in addition to the use of LP arrangements for our entry into the typical PE fund structure, the EPF has also used fund-of-funds managers. This has been especially useful in scaling our operation in primary and secondary investments in developed markets. Obviously, for co-investment and direct deals, we employ advisors to conduct the legal, financial and commercial due diligence processes in conjunction with the funds that we partner on those transactions.

Q: To what extent does the QSR Brands-KFC Holdings deal, completed in partnership with Johor Corp and CVC Capital Partners, represent the kind of co-investments you are looking to do?

A: The QSR-KFC deal fulfils key criteria for the EPF's co-investment mandate - it is within our geographic mandate, the business has strong cash flows and the deal structure is a partnership between strong local investors and an experienced PE manager. The investment is also in a segment which we like, namely cash-flow driven consumer businesses with significant growth potential. Apart from that, we are actively seeking to participate in similar sizeable direct co-investment deals with our existing PE managers in Southeast Asia, Australia, and Western Europe.

Q: What do you see as the key factors that may help or hinder the development of private equity in Malaysia?

A: Private equity is already very vibrant in Malaysia with a significant number of entrepreneurs and families actively involved in business operations and investments. However, it is not in the form that is defined as PE by Western investors where a GP-LP model with primarily institutional participation exists. From our perspective, the issue is not about the industry's development but rather access for institutional investors. Malaysian businesses have had the benefit of significant access to and support from a well-developed banking sector and capital market and so they have been less reliant on alternative sources of capital. The growth in the GP-LP model has, however, been significant over the past few years. Culturally, family-run businesses have traditionally been reluctant to open up to third-party investors, but we believe this too is changing.

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• Topics
• LPs
• Southeast Asia
• EPF
• Malaysia
• LPs