The two state funds stopped investing in the CSE following the bad blood during the pump and dump era two years ago, which has pushed the CSE to lobby the Treasury to get the CB to lure both agencies to restart their investments. The two funds dominate the pensions industry and about 92 per cent of these funds are invested in government securities. Only 6.5 per cent of the Rs. 3.1 trillion market capitalisation of the CSE is owned by institutional institutions such as EPF, ETF, insurance companies and unit trusts.
“There are many court cases against the EPF and the ETF and we can only go back to the market after we’re cleared of these misdemeanors,” a CB official told the Business Times on the basis of anonymity.
The two agencies stopped putting cash in the CSE about two years ago. The reason was that it was alleged that the EPF had incurred losses through the purchase of stocks in companies with artificially bloated share prices. The Treasury’s stance is that EPF is not the private fund of a few people to decide on its investments; particularly questionable transactions in the CSE where allegations of ‘pump and dump’ have been made. The Securities and Exchange Commission (SEC) and CSE met with the Treasury officials recently to implore them to reverse this decision last month but despite many presentations they have turned a blind eye.
Analysts say that now’s the right time to consider creating more broadly diversified portfolios subject to the investment constraints to optimise the risk-reward structure of these portfolios. With pension reforms, offering portfolio choices to subscribers, creating investment portfolios based on subscriber preferences and allowing external fund management of portions of pension portfolios will likely help diversify portfolios and enhance returns to subscribers in the long-term, they say.