EPF Loses Billions In The Stock Market

By Mandana Ismail Abeywickrema
Trade unions have called on President Mahinda Rajapaksa to carry out an independent inquiry into the billions of rupees lost by the Employees Provident Fund (EPF) after investing in the Colombo Stock Exchange (CSE).
The Inter Company Employees Union (ICEU) said the government had swindled away billions of rupees in EPF funds by investing in stocks in a fraudulent manner.
ICEU Head Wasantha Samarasinghe said that some officials were trying to dissolve the EPF by investing monies in stocks belonging to companies affiliated to them.
He observed that while 5 percent of EPF monies were earlier invested in the stock market, it has been increased to 8 percent in the last few months.
“Statistics have revealed that in 2008, the EPF had invested Rs. 30 billion in the stock market and earned returns amounting to only Rs. 0.17 billion,” he charged.
“The prices of certain stocks are inflated and once the EPF purchases them the prices fall,” he added.
Speaking of three specific investments of EPF monies in the stock market, Samarasinghe said the EPF had brought stocks for Rs. 4 billion and lost Rs. 1 billion.
He explained that in one instance the EPF had purchased 10 percent of Laugfs shares that were Rs. 38 each for Rs. 48 on the 10th. The monies invested were Rs.1.8 billion and by the end of trading, the stocks have fallen to Rs. 40.
Following this transaction, Laugfs had purchased 100,000 shares of its own company for Rs. 40 each.
“There is a clear irregularity in this transaction and the monies have been invested following advice from the authorities. Who gave the advice to invest in bad stock?” Samarasinghe questioned.
He said that similar incidents have taken place in the purchase of stocks by EPF from Grain Elevators and Browns.
In the case of Grain Elevators, five million stocks that were purchased at Rs. 238 each has now fallen to Rs. 100 a share.
“These are workers’ monies and the government has invested Rs. 20 billion in the stock market in the past few months,” Samarasinghe said.
Apart from an inquiry into the investments, the ICEU has called on the authorities to appoint trade union representatives to the EPF board and to consult trade unions when investing the fund’s monies.
The current value of the EPF stands at Rs. 1,050 billion.
Meanwhile, Labor Minister Gamini Lokuge said the Central Bank of Sri Lanka is administering the EPF since its inception in 1959.
“Our institution ensures that the workers are paid their dues from the fund,” he said.
However, Lokuge said that EPF monies had been invested in the stock market by successive governments and that the market constantly fluctuated.
“Share prices increase and decline, it cannot be controlled,” he added.
Nevertheless, the Minister said that there was no problem with regard to the EPF and the monies due to the workers since the Central Bank was responsible for the Fund.
“The decisions are made by the Central Bank’s Monetary Board and the workers are paid a 12.5 percent interest,” Lokuge said.
http://www.thesundayleader.lk/2011/10/30/epf-loses-billions-in-the-stock-market/

Whatever investments made by EPF, pension funds...etc etc.... are long term investments. Not only EPF, other institutional investors have also experienced reduction in value in their equity investments these days since from the beginning of year 2011 market is going down.

However some people are trying to create a political issue out of this. This is kind of a politically motivated news paper when one analyses the past experience.

Before worring about EPF we have to worry about our own PF.EPF has lot of money they can cover that loss ethically or unethically.

Yes let us first admit EPF did not make optimal purchases in the current market. Is this a crime as much as we are seeing it now?


If one wishes to buy any share in Millions ( large holding), would any big shareholder let go of their holding at the lowest market price? So ofcourse buying big quantities will require a premium.

Yes LGL sold at Rs 48 to EPF. But LGL still have only collected few hundred thousand at lower market prices. Question is can they collect multi millions of shares from traders at CSE?


Let us ask ourselves what would be the value of GRAN,BRWN , LGL in 5 years time? I am not saying EPF made good decisions but their strategy is different to ours. And again yes I admit maybe they could have negotiated better deals. But think long term.


I wrote the below on the same topic some months ago. Idea it still relevant. So am sharing again




Further to above facts I would like to add the below . Let me start by saying Long term vs Short term mind set is/ can be different. If you think Optimal and Short term as operative words then we can raise questions about their strategy.


1) In general EPF has not let us down over the years for some of us who benefited from it. Their annual return has been decent and during difficult time for which I am happy as I do not expect miracle returns form a fund like them. The question is what is the "Expectation" of a general EPF beneficiary who is not exposed to Stock Markets or the trends or their internal workings? Is EPF somehow meeting that expectations by balancing their overall returns ( not only selected equity buys)?



2) Yes EPF has made a few not optimal investments in short term ( not buying at the right time .
But we need to remember

i) for Long Term funds like EPF they do not have to dispose what they bought now. They can hold
until desired return is met maybe in 5 years. This is different to a Retailer mind set. [/b] They also
have bought stocks at lower prices which they can dispose now for profit. Long term mind set,
holding and disposal strategy is different. It may not be optimal in short term.

- When spen was trading around RS 300 in 2009 ( much before 1 to 15 split) maybe some thought
for prevailing market situation it was overvalued and maybe there were better shares to
invest. I reiterate we need to look from the mentality at that time not now. But if one bought at that
time for long term holding they could have disposed at 8-10 gain in 2010. ( I understand 2010 was
an exception but this is an example only)

Now if one bought SPEN at Rs 600 then they can ask why did you buy at Rs 600 when you could
have bought for Rs 300.

In the long term solid companies tend to pay off. ( depend on holding power) . For short term it looks
like a bad move if you only look at percentage gains, fundamental analysis and trends.

The real question is can someone say buying share at RS 230 now is a bad move in 5 years time?
Will there is a huge difference of Rs 90 ( Rs 140 vs Rs 230 which I agree is a large dip due to fundamental)
if the gain will be multiple times than that ? ( I am not saying it will happen but saying it could looking at past history patterns)


Another opposite example : Rememebr when SLIC sold CFIN for Rs 800 recently ? Some asked why do
they have to sell a undervalued share at that price. Answer : They bought long ago at much chepaer
prices and sold with significant gains after it satifies their strategy. No one will ask now, did they
buy CFIN overvalued when they purchased then.? People will say now oh they bough cheap.


ii) EPF seems to act sometimes in rescue missions in difficult market times. So from time to time
when they buy they would not get the best price or best from retailer point of view who has more flexibility.
Also negotiating and buying large quantities can require premium as opposed to buying from retail
stock market

But due to their long term long holding, averaging and disposing plan as I mentioned in i)
it appears to offset somehow.

iii) We also do not know about their cash availabilty/release periods. Someone said "best time to invest is
when some has money to invest"! (Ofcourse the circular question arises why do you buy a overvlaued share with that money?)





3) Also note
"Of the total investment portfolio of Rs 924 billion as at May 31, 2011"
- the Fund has invested Rs 856 billion in Treasury Bills and other government securities, 92.7%
- Rs 57.28 billion or 6.2% of the total portfolio which is invested in listed and unlisted equities
- 0.5% or Rs 4.62 billion invested in Reverse Repo.

With a claimed return of 15% and over 93% attributed to lesser risk investments we need to look at overall performance and and not isolate only the equity component. Somehow they seems to be balancing their return. Cannot say they are bad managers. We comments on Equity as we are knowledagle. But what about the overall management?


In summary :

Some people can again counter argue to what I said , isn;t it better to buy at Rs130 than RS 230 knowing it is overvalued. it is waste of public money. But large funds as EPF can act differently with different approaches than us. If still you say it is a waste now think say 5 years from now ? Can we say it will be bad investment ?

One thing I agree is that EPF should disclose more about their strategies ( not everything but enough for the public to get an understanding) as it is a Public Fund. Maybe it would clear this matter more than keeping it secret.

I can remember even Cargils paid a very high premium to buy Kothmale Holdings. Around 15-=% higher price than the market pricce at that time. When someone wants by multy million of shares of a company definetely he/she will have to pay a primium to a large sharehoder.

Rajaraam wrote:I can remember even Cargils paid a very high premium to buy Kothmale Holdings. Around 15-=% higher price than the market pricce at that time. When someone wants by multy million of shares of a company definetely he/she will have to pay a primium to a large sharehoder.

Cargils bought it at Rs40/= Prior to the announcement price of Kothmale went up to that level.But when EPF buys price goes other way around.