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The EPF realized returns in 2011 was as high as Rs. 2,504 million, while during the first seven months of 2012, the realized returns have reached Rs.1,877 million.
The EPF via communication addressed to the Ceylon Federation of Labour said that all its equity investments,including those in Galadari Hotel, Laugh Gas, Ceylon Grain Elevators and TFC, have been made, in accordance with the principles and factors enunciated already. The communiqué added, “In that context, we are confident that our “pool of investments”, including the aforesaid investments would generate substantial returns and that our investment decisions will be proved pragmatic, sensible and profitable over the longer term horizon.
“We also wish to reaffirm that there is clearly very little risk of the EPF suffering any real loss during the current bearish phase of the stock market, since the EPF has the capacity to hold onto the stocks where the market values may have temporarily reduced below cost, unlike in the case of those who operate on margin accounts.”
EPF says critics silent when unrealized gains were Rs 19 b
The EPF has responded in a comprehensive manner to the various allegations levelled against the Trillion rupee fund by various critics, through its communication addressed to the Ceylon Federation of Labour.
“We are deeply disturbed by the many insinuations and allegations that have been made in the letter with regard to the EPF management of the funds and, at the outset; we wish to reject such allegations outright, as being baseless and unwarranted.
As you are aware, we have, on many occasions, pointed out the long term focus of the EPF’s investments in the Colombo Stock Exchange, as well as the underlying factors that we take into consideration when making our investment decisions. However, it is highly regrettable that none of those matters have been given due consideration in the letter that had been written to you by the CFOL. Therefore, for purposes of completeness we set out below our responses to the matters raised by the CFOL, in order to set the record straight.
The Auditor General has pointed out in his report for 2010 the several serious accounting deficiencies and management inefficiencies that need rectification at the level of your Ministry and Department.
The EPF Department of the Central Bank of Sri Lanka (CBSL) together with EPF Section of the Department of Labor have already made arrangements to resolve the issues raised by the Auditor General, and almost all these issues have been satisfactorily dealt with. At the same time, the EPF Department of the CBSL is continuously clearing the balances in the Under Payment and Over Payment Accounts (UP/OP), as and when the information required for the reconciliation is received.
As you are aware, the UP/OP account is a provisional account maintained by the EPF Department, to which is temporarily credited, the remittances received in instances where there is a discrepancy in the member information provided by the employers, at the time payment is received.
In such instances, the temporary account is cleared and the respective member accounts are finally credited, only after obtaining the accurate account information from employers. It would be readily appreciated that until the accurate amounts to be credited to member accounts are received by us, it will not be possible for us to credit the accounts of members, as that would be obviously incorrect. What is inexplicable therefore is that without appreciating the practicality of this situation that some persons are attempting to cast insinuations on the EPF on the grounds that member accounts have not been credited in these circumstances.
In relation to this issue, we have already issued a clarification on June 2, 2012, through a Press Release.
The very many speculative investments in the Stock Market have brought low rate of return to the members of the Fund.
The investment portfolio of the Fund has seen its rate of return decline to 12% in 2011 from 15% of the previous year. The fund managers will have to explain the reason for the decline.
The interest paid to member’s balances has also declined reaching 11.5% in 2011 from 12.5% in 2010. This also needs explanation by fund managers.
As is well known, the interest rates prevailing in the country in 2011 were substantially lower than the interest rates that existed in 2010. In that context, alleging that the reduced rate of return is as a result of speculative investment in the Stock Market is highly erroneous and ill-advised. Hence, contrary to the above unsubstantiated and sweeping allegation, there has been no reduction in the rate of return provided by the EPF to its members, when its performance is compared to the performances of other long term funds.
The chart below depicts the rates of return given by the EPF to the members in recent years, compared to other alternative investment opportunities available in the country.
A major share of the EPF (92%) has been invested in government securities, while it has invested 7% of its resources in equities and 1% in debt instruments of corporates. At the same time, the EPF has clarified its rationale and investment decision making process in two comprehensive Press Releases dated August 18, 2010, and November 2.
For purposes of record, we wish to once again reiterate that over the recent past, the EPF has made several investments in various listed Corporates through the Colombo Stock Exchange, and also in selected unlisted Corporates, on the basis of, inter alia, intrinsic value of the company, its growth prospects, the possible enhancement of share value in the medium to long-term, its governing structures, the viability and prospects of the industry, the quantity of shares available, the future plans, the impact of the growing economy on the company, etc. Such shares in various Corporates have been gradually accumulated over the past several months in a methodical and professional manner. Further, we also wish to state that the Fund is managed by a team of professionals who possess accounts and postgraduate qualifications as well as advanced training in investment management.
On that basis, we wish to re-affirm that the investments that have been made by the EPF have not been based on any speculation, but upon sound investment principles implemented by professionally qualified and experienced persons.
Equity investments notably in the Galadari Hotel, Laugh Gas, Ceylon Grain Elevators, and TFC etc. have shown that these investments have been made to help out business cronies at the expense of the hard earned savings of workers is believed that the EPF has lost a staggering Rs.12 billion at the Stock Market. The scale of loss is a cause for concern. A full explanation is called for on each of the transactions.
Once again, we are highly concerned about the undertone of the above sweeping and unsubstantiated allegations. We believe that those arbitrary comments are based upon a similar reckless allegation that was made by an Opposition Member of Parliament as reported in several newspapers on May 15, 2012. The EPF has already responded to such allegation in a comprehensive manner through our Press Release dated May 21, 2012.
As already pointed out in that response, in the case of equity investments, the performance of different companies and the market values of the shares of companies within the portfolio at different times, depend on a series of global, economic, political, financial, sector-specific and company-specific, factors. In that background, companies and share markets do not perform uniformly, nor does the market prices of shares continue to rise at all times. As a consequence, there may be times during which the value of certain stocks could be lower than the cost, but such situations are almost always reversed when external factors change for the better, over time.
Today, we observe a massive media campaign where the current unrealized losses of the EPF in the bearish trend of the Stock Market, is being constantly highlighted and blamed on the fund managers. Accusations of corruption, mismanagement and fraud is being made, but, notwithstanding our constant and consistent reminders that the EPF had enjoyed massive unrealized gains for a considerable period in 2010 and 2011.
In fact, at one time in February 2011, such unrealized gains even exceeded Rs. 19 billion! However, those facts are conveniently and perhaps deliberately, ignored.
This biased attitude shows very clearly that there is an organized attempt to portray the EPF investments in a sinister light, which has probably misled the CFOL also to make the unfair and unfounded allegations, as set out in their letter under reference.
Therefore, for purposes of record we once again wish to categorically state that realized returns in 2011 was as high as Rs. 2,504 million, while during the first seven months of 2012, the realized returns have reached Rs.1,877 million. Here too, our detractors conveniently choose to overlook these actual results, due to reasons best known to them.
We wish to also categorically state that all our equity investments, including those in Galadari Hotel, Laugh Gas, Ceylon Grain Elevators and TFC, have been made on the basis of careful investment appraisal and analyses, in accordance with the principles and factors enunciated by us already. In that context, and we are confident that our “pool of investments”, including the aforesaid investments would generate substantial returns and that our investment decisions will be proved pragmatic, sensible and profitable over the longer term horizon.
We also wish to reaffirm that there is clearly very little risk of the EPF suffering any real loss during the current bearish phase of the stock market, since the EPF has the capacity to hold onto the stocks where the market values may have temporarily reduced below cost, unlike in the case of those who operate on margin accounts. Further, the EPF will also be able to benefit by any dividends during the near term, and also make substantial gains when the ASPI moves up in due course. In such background, as we have repeatedly cautioned, it is completely erroneous to assess and evaluate a long term investment portfolio on a day-to-day basis based on market behavior at different times, and we would therefore reiterate such advice, at this stage as well.
In recent times we have observed the increasing tendency on the part of the fund managers to come to the rescue of the Stock Market, whenever it falters which is not the objective of the EPF.
This course of action we cannot support.It is a well-known principle in portfolio investment management that, during a downturn of a stock market, certain selected stocks that are of good value must be accumulated by long term and large scale funds which have the holding capacity. On that basis, large funds can accumulate useful investments at prices that are very competitive, so that they could average down the cost of its individual stocks and its total portfolio, so as to be in a position to make substantial gains when the market recovers. This practice is generally implemented to by Fund Managers all over the world, and it is a rather popular practice that is followed in a downturn or a bear market.
The EPF too has practiced such an investment approach during the downturn of the Colombo stock market, and such investment methodology cannot in any way, be construed as a fund coming to “rescue the stock market”. Hence, the above observation too can only be identified as an unfounded allegation that has been marketed by certain political elements, to discourage a stock market recovery, as well as damage the credibility of the EPF.
The EPF Act No.15 of 1958 saw to it that investment of funds would be in such securities as the Monetary Board may consider it fit. The law did not permit investments in the Share Market.
It was due to this reason that the Government of 1977 got up a new fund via the Employees Trust Fund (ETF) Act for the acquisition of equity interests in enterprises and participate in financing and investment to promote employee ownership.
The above statement is completely erroneous, and we wish to state that the EPF has clear authority to make investments in the Stock Market and it had notified such position in its Press Release dated August 18, 2010. In fact, since there seemed to be further debate on the subject, the EPF reiterated such position in another Press Release dated June 6, 2012 as well. As a further measure, a statement was also made by the Senior Minister of International Monetary Cooperation, Dr. Sarath Amunugama in Parliament, on June 21, 2012 which reaffirmed the authority of the EPF to make investments in the Stock Market. In his speech, the Hon. Minister stated: “The EPF has authority to make investments in the stock market. Section 5(1)(e) of the Employees’ Provident Fund act states that “Monetary Board may invest the monies of the Fund in such securities as the Monetary Board may consider fit and may sell such securities”. The EPF has also constantly maintained that all its investments have been made in line with the guidelines issued from time to time by the Monetary Board”.
We must also point out that over the past 53 years, the EPF has performed much better than many other funds in this country, and has been able to enjoy the trust and confidence of the country’s work force.
That is probably why, whenever there have been instances of problems in other pension or provident funds, those funds too have also been entrusted to the EPF in order to overcome lapses, deficiencies, and stresses that existed. In this context, the EPF is also proud to state that there has not been a single accusation over the past 53 years that any EPF member has been deprived of his/her dues at the time of retirement, or that any inducement had to be made to obtain a refund or any other service at the EPF.
It must also be stated that the Monetary Board and the EPF is deeply conscious that the EPF comprises of the hard earned savings of the millions of Sri Lankans who eagerly look forward to benefit by the Fund at the time of their retirement. It is due to the keen awareness of such serious responsibility, that the Monetary Board and the EPF have taken many far-reaching and important steps to ensure the safety and stability of the fund, the progressive enhancement of the value of the fund, and the adequate return to the members over the longer period.
In this background, it is grossly unfortunate that unfair allegations have been hurled at the EPF’s highly qualified professional team who have been abused on a regular basis by persons who have very little knowledge about the method or practice of long term fund management. These attacks are all the more damaging because such efforts cunningly by-pass all the good work done by the EPF, including the many measures that have been taken to strengthen the management of the EPF during the past few years.
Finally, we wish to state that we are in agreement with CFOL’s final statement where they have raised suspicion that there may be an “subterranean plot” of “interested lobbies both local and foreign to get the management of the one trillion worth EPF that belongs to the workers” and to engineer the shift of the EPF’s management to private outsourced parties. In fact this issue seemed to have been raised in a media report on July 8, 2012 which may be worthy of quote: “A new strategy seems to have been developed during the past year or so, by some of these interested parties to wrest control the EPF funds from the Monetary Board and entrust the funds to outsourced private sector parties, for management.
This new strategy seems to involve an informal lobby by a few connected persons in certain business circles, while simultaneously, a parallel cry that the EPF is mismanaging its funds is being raised by a vociferous group led by an Opposition MP closely connected to the US. The fact that the EPF has been delivering substantial returns, which have been well over the rate of inflation and much higher than that credited by other similar funds during the past five years, has been conveniently ignored, and these groups have since been relentlessly pursuing their goal of discrediting the EPF.
In the meantime, around September 2011, a well-known US based consultancy firm, Mckinsy and Co. had been given a consultancy assignment, said to be worth over Rs.150 million by the Colombo Stock Exchange, to propose strategies to broaden the retail participation in capital markets and to build a stronger unit trust industry.
This consulting firm has produced an action plan in December 2011 which sets out what they call “three key transformational themes”. Interestingly, but not surprisingly, the most important theme set out by them is to outsource the current in-house portfolio management of the EPF and ETF to private sector unit trusts.
Although this revolutionary idea has been mooted rather openly by a well-known consulting firm, it is likely that those who were seeking this outcome would have realized that this so called transformation was not going to take place easily, given the stance of the present government. In that background, those who were plotting such a move behind the scenes, may have come to the conclusion that this transformation as they call it, could take place only if sufficient pressure was brought upon the Government and the Monetary Board, through a systematic allegation of mismanagement of EPF funds, coupled with a call for a change in management by influential agencies.
That may perhaps explain why, after the report of Mckinsy & Co. was issued in December 2011, the attacks on EPF have been stepped up, with the effort being spearheaded by the US linked, anti-China, Opposition MP. The suspicion that has now arisen is, as to whether these constant attacks on the EPF are a part of a broader plan set in motion by certain foreign interests to wrest control of the largest Fund that is owned by the people of this country, which accounts for about 20% of the country’s financial sector….
In the circumstances, all stake holders must now be highly vigilant about the efforts of these vociferous persons who may be the cat’s paw to carry out a sinister contract to transfer control of one of the largest national assets that has been carefully safe-guarded for over 50 years, to private parties with vested interests”.
http://www.dailynews.lk/2012/08/06/bus06.asp
The EPF via communication addressed to the Ceylon Federation of Labour said that all its equity investments,including those in Galadari Hotel, Laugh Gas, Ceylon Grain Elevators and TFC, have been made, in accordance with the principles and factors enunciated already. The communiqué added, “In that context, we are confident that our “pool of investments”, including the aforesaid investments would generate substantial returns and that our investment decisions will be proved pragmatic, sensible and profitable over the longer term horizon.
“We also wish to reaffirm that there is clearly very little risk of the EPF suffering any real loss during the current bearish phase of the stock market, since the EPF has the capacity to hold onto the stocks where the market values may have temporarily reduced below cost, unlike in the case of those who operate on margin accounts.”
EPF says critics silent when unrealized gains were Rs 19 b
The EPF has responded in a comprehensive manner to the various allegations levelled against the Trillion rupee fund by various critics, through its communication addressed to the Ceylon Federation of Labour.
“We are deeply disturbed by the many insinuations and allegations that have been made in the letter with regard to the EPF management of the funds and, at the outset; we wish to reject such allegations outright, as being baseless and unwarranted.
As you are aware, we have, on many occasions, pointed out the long term focus of the EPF’s investments in the Colombo Stock Exchange, as well as the underlying factors that we take into consideration when making our investment decisions. However, it is highly regrettable that none of those matters have been given due consideration in the letter that had been written to you by the CFOL. Therefore, for purposes of completeness we set out below our responses to the matters raised by the CFOL, in order to set the record straight.
The Auditor General has pointed out in his report for 2010 the several serious accounting deficiencies and management inefficiencies that need rectification at the level of your Ministry and Department.
The EPF Department of the Central Bank of Sri Lanka (CBSL) together with EPF Section of the Department of Labor have already made arrangements to resolve the issues raised by the Auditor General, and almost all these issues have been satisfactorily dealt with. At the same time, the EPF Department of the CBSL is continuously clearing the balances in the Under Payment and Over Payment Accounts (UP/OP), as and when the information required for the reconciliation is received.
As you are aware, the UP/OP account is a provisional account maintained by the EPF Department, to which is temporarily credited, the remittances received in instances where there is a discrepancy in the member information provided by the employers, at the time payment is received.
In such instances, the temporary account is cleared and the respective member accounts are finally credited, only after obtaining the accurate account information from employers. It would be readily appreciated that until the accurate amounts to be credited to member accounts are received by us, it will not be possible for us to credit the accounts of members, as that would be obviously incorrect. What is inexplicable therefore is that without appreciating the practicality of this situation that some persons are attempting to cast insinuations on the EPF on the grounds that member accounts have not been credited in these circumstances.
In relation to this issue, we have already issued a clarification on June 2, 2012, through a Press Release.
The very many speculative investments in the Stock Market have brought low rate of return to the members of the Fund.
The investment portfolio of the Fund has seen its rate of return decline to 12% in 2011 from 15% of the previous year. The fund managers will have to explain the reason for the decline.
The interest paid to member’s balances has also declined reaching 11.5% in 2011 from 12.5% in 2010. This also needs explanation by fund managers.
As is well known, the interest rates prevailing in the country in 2011 were substantially lower than the interest rates that existed in 2010. In that context, alleging that the reduced rate of return is as a result of speculative investment in the Stock Market is highly erroneous and ill-advised. Hence, contrary to the above unsubstantiated and sweeping allegation, there has been no reduction in the rate of return provided by the EPF to its members, when its performance is compared to the performances of other long term funds.
The chart below depicts the rates of return given by the EPF to the members in recent years, compared to other alternative investment opportunities available in the country.
A major share of the EPF (92%) has been invested in government securities, while it has invested 7% of its resources in equities and 1% in debt instruments of corporates. At the same time, the EPF has clarified its rationale and investment decision making process in two comprehensive Press Releases dated August 18, 2010, and November 2.
For purposes of record, we wish to once again reiterate that over the recent past, the EPF has made several investments in various listed Corporates through the Colombo Stock Exchange, and also in selected unlisted Corporates, on the basis of, inter alia, intrinsic value of the company, its growth prospects, the possible enhancement of share value in the medium to long-term, its governing structures, the viability and prospects of the industry, the quantity of shares available, the future plans, the impact of the growing economy on the company, etc. Such shares in various Corporates have been gradually accumulated over the past several months in a methodical and professional manner. Further, we also wish to state that the Fund is managed by a team of professionals who possess accounts and postgraduate qualifications as well as advanced training in investment management.
On that basis, we wish to re-affirm that the investments that have been made by the EPF have not been based on any speculation, but upon sound investment principles implemented by professionally qualified and experienced persons.
Equity investments notably in the Galadari Hotel, Laugh Gas, Ceylon Grain Elevators, and TFC etc. have shown that these investments have been made to help out business cronies at the expense of the hard earned savings of workers is believed that the EPF has lost a staggering Rs.12 billion at the Stock Market. The scale of loss is a cause for concern. A full explanation is called for on each of the transactions.
Once again, we are highly concerned about the undertone of the above sweeping and unsubstantiated allegations. We believe that those arbitrary comments are based upon a similar reckless allegation that was made by an Opposition Member of Parliament as reported in several newspapers on May 15, 2012. The EPF has already responded to such allegation in a comprehensive manner through our Press Release dated May 21, 2012.
As already pointed out in that response, in the case of equity investments, the performance of different companies and the market values of the shares of companies within the portfolio at different times, depend on a series of global, economic, political, financial, sector-specific and company-specific, factors. In that background, companies and share markets do not perform uniformly, nor does the market prices of shares continue to rise at all times. As a consequence, there may be times during which the value of certain stocks could be lower than the cost, but such situations are almost always reversed when external factors change for the better, over time.
Today, we observe a massive media campaign where the current unrealized losses of the EPF in the bearish trend of the Stock Market, is being constantly highlighted and blamed on the fund managers. Accusations of corruption, mismanagement and fraud is being made, but, notwithstanding our constant and consistent reminders that the EPF had enjoyed massive unrealized gains for a considerable period in 2010 and 2011.
In fact, at one time in February 2011, such unrealized gains even exceeded Rs. 19 billion! However, those facts are conveniently and perhaps deliberately, ignored.
This biased attitude shows very clearly that there is an organized attempt to portray the EPF investments in a sinister light, which has probably misled the CFOL also to make the unfair and unfounded allegations, as set out in their letter under reference.
Therefore, for purposes of record we once again wish to categorically state that realized returns in 2011 was as high as Rs. 2,504 million, while during the first seven months of 2012, the realized returns have reached Rs.1,877 million. Here too, our detractors conveniently choose to overlook these actual results, due to reasons best known to them.
We wish to also categorically state that all our equity investments, including those in Galadari Hotel, Laugh Gas, Ceylon Grain Elevators and TFC, have been made on the basis of careful investment appraisal and analyses, in accordance with the principles and factors enunciated by us already. In that context, and we are confident that our “pool of investments”, including the aforesaid investments would generate substantial returns and that our investment decisions will be proved pragmatic, sensible and profitable over the longer term horizon.
We also wish to reaffirm that there is clearly very little risk of the EPF suffering any real loss during the current bearish phase of the stock market, since the EPF has the capacity to hold onto the stocks where the market values may have temporarily reduced below cost, unlike in the case of those who operate on margin accounts. Further, the EPF will also be able to benefit by any dividends during the near term, and also make substantial gains when the ASPI moves up in due course. In such background, as we have repeatedly cautioned, it is completely erroneous to assess and evaluate a long term investment portfolio on a day-to-day basis based on market behavior at different times, and we would therefore reiterate such advice, at this stage as well.
In recent times we have observed the increasing tendency on the part of the fund managers to come to the rescue of the Stock Market, whenever it falters which is not the objective of the EPF.
This course of action we cannot support.It is a well-known principle in portfolio investment management that, during a downturn of a stock market, certain selected stocks that are of good value must be accumulated by long term and large scale funds which have the holding capacity. On that basis, large funds can accumulate useful investments at prices that are very competitive, so that they could average down the cost of its individual stocks and its total portfolio, so as to be in a position to make substantial gains when the market recovers. This practice is generally implemented to by Fund Managers all over the world, and it is a rather popular practice that is followed in a downturn or a bear market.
The EPF too has practiced such an investment approach during the downturn of the Colombo stock market, and such investment methodology cannot in any way, be construed as a fund coming to “rescue the stock market”. Hence, the above observation too can only be identified as an unfounded allegation that has been marketed by certain political elements, to discourage a stock market recovery, as well as damage the credibility of the EPF.
The EPF Act No.15 of 1958 saw to it that investment of funds would be in such securities as the Monetary Board may consider it fit. The law did not permit investments in the Share Market.
It was due to this reason that the Government of 1977 got up a new fund via the Employees Trust Fund (ETF) Act for the acquisition of equity interests in enterprises and participate in financing and investment to promote employee ownership.
The above statement is completely erroneous, and we wish to state that the EPF has clear authority to make investments in the Stock Market and it had notified such position in its Press Release dated August 18, 2010. In fact, since there seemed to be further debate on the subject, the EPF reiterated such position in another Press Release dated June 6, 2012 as well. As a further measure, a statement was also made by the Senior Minister of International Monetary Cooperation, Dr. Sarath Amunugama in Parliament, on June 21, 2012 which reaffirmed the authority of the EPF to make investments in the Stock Market. In his speech, the Hon. Minister stated: “The EPF has authority to make investments in the stock market. Section 5(1)(e) of the Employees’ Provident Fund act states that “Monetary Board may invest the monies of the Fund in such securities as the Monetary Board may consider fit and may sell such securities”. The EPF has also constantly maintained that all its investments have been made in line with the guidelines issued from time to time by the Monetary Board”.
We must also point out that over the past 53 years, the EPF has performed much better than many other funds in this country, and has been able to enjoy the trust and confidence of the country’s work force.
That is probably why, whenever there have been instances of problems in other pension or provident funds, those funds too have also been entrusted to the EPF in order to overcome lapses, deficiencies, and stresses that existed. In this context, the EPF is also proud to state that there has not been a single accusation over the past 53 years that any EPF member has been deprived of his/her dues at the time of retirement, or that any inducement had to be made to obtain a refund or any other service at the EPF.
It must also be stated that the Monetary Board and the EPF is deeply conscious that the EPF comprises of the hard earned savings of the millions of Sri Lankans who eagerly look forward to benefit by the Fund at the time of their retirement. It is due to the keen awareness of such serious responsibility, that the Monetary Board and the EPF have taken many far-reaching and important steps to ensure the safety and stability of the fund, the progressive enhancement of the value of the fund, and the adequate return to the members over the longer period.
In this background, it is grossly unfortunate that unfair allegations have been hurled at the EPF’s highly qualified professional team who have been abused on a regular basis by persons who have very little knowledge about the method or practice of long term fund management. These attacks are all the more damaging because such efforts cunningly by-pass all the good work done by the EPF, including the many measures that have been taken to strengthen the management of the EPF during the past few years.
Finally, we wish to state that we are in agreement with CFOL’s final statement where they have raised suspicion that there may be an “subterranean plot” of “interested lobbies both local and foreign to get the management of the one trillion worth EPF that belongs to the workers” and to engineer the shift of the EPF’s management to private outsourced parties. In fact this issue seemed to have been raised in a media report on July 8, 2012 which may be worthy of quote: “A new strategy seems to have been developed during the past year or so, by some of these interested parties to wrest control the EPF funds from the Monetary Board and entrust the funds to outsourced private sector parties, for management.
This new strategy seems to involve an informal lobby by a few connected persons in certain business circles, while simultaneously, a parallel cry that the EPF is mismanaging its funds is being raised by a vociferous group led by an Opposition MP closely connected to the US. The fact that the EPF has been delivering substantial returns, which have been well over the rate of inflation and much higher than that credited by other similar funds during the past five years, has been conveniently ignored, and these groups have since been relentlessly pursuing their goal of discrediting the EPF.
In the meantime, around September 2011, a well-known US based consultancy firm, Mckinsy and Co. had been given a consultancy assignment, said to be worth over Rs.150 million by the Colombo Stock Exchange, to propose strategies to broaden the retail participation in capital markets and to build a stronger unit trust industry.
This consulting firm has produced an action plan in December 2011 which sets out what they call “three key transformational themes”. Interestingly, but not surprisingly, the most important theme set out by them is to outsource the current in-house portfolio management of the EPF and ETF to private sector unit trusts.
Although this revolutionary idea has been mooted rather openly by a well-known consulting firm, it is likely that those who were seeking this outcome would have realized that this so called transformation was not going to take place easily, given the stance of the present government. In that background, those who were plotting such a move behind the scenes, may have come to the conclusion that this transformation as they call it, could take place only if sufficient pressure was brought upon the Government and the Monetary Board, through a systematic allegation of mismanagement of EPF funds, coupled with a call for a change in management by influential agencies.
That may perhaps explain why, after the report of Mckinsy & Co. was issued in December 2011, the attacks on EPF have been stepped up, with the effort being spearheaded by the US linked, anti-China, Opposition MP. The suspicion that has now arisen is, as to whether these constant attacks on the EPF are a part of a broader plan set in motion by certain foreign interests to wrest control of the largest Fund that is owned by the people of this country, which accounts for about 20% of the country’s financial sector….
In the circumstances, all stake holders must now be highly vigilant about the efforts of these vociferous persons who may be the cat’s paw to carry out a sinister contract to transfer control of one of the largest national assets that has been carefully safe-guarded for over 50 years, to private parties with vested interests”.
http://www.dailynews.lk/2012/08/06/bus06.asp
