EPF investments under scrutiny

The Employees’ Provident Fund (EPF) – the largest superannuation fund of the private and semi-government sector employees in Sri Lanka – has come under scrutiny in the wake of a recent report published by Verite Research – a renowned think tank in the country. The Verite Research publication had noted the Fund had suffered a loss of nearly Rs. 20 billion due to unsound investments in equity and bonds over a period of three decades.

The revelation comes in the backdrop of accusations that EPF bore the brunt of losses arising from the Domestic Debt Optimisation which was carried out in 2023. Unlike the government sector employees who are entitled for a lifetime pension, private and semi-government sector employees depend on the benefits they receive from the EPF to have a peace of mind during the winter of their lives. The investment of the contributions collected from the members of the Fund is critical in terms of ensuring their long-term financial security.

At the end of 2023, the Fund had assets exceeding Rs. 3.8 trillion, and the EPF was able to declare a rather commendable rate of return of 13.00% to its members during the year. One must bear in mind that the members of the Fund received substantially negative real returns particularly in 2022 when the fund declared a meagre rate of return of 9% while the inflation was hovering at around 70%, thus resulting in a significant erosion of the wealth of its membership.

Apart from losses resulting from bond and equity investments, the superannuation scheme also incurred Rs. 12,382 million (2007-2017) as foregone earnings by investing in unlisted companies instead of Government securities that provide fixed positive returns every year. The Fund in an awful move had also invested in a white elephant like SriLankan Airlines in vindication of the oft-repeated argument that superannuation schemes like the EPF and ETF perform as captive funds to meet the needs of the political hierarchy of the Government instead of safeguarding the wealth of the working class.

Many have now forgotten how the EPF gambled with the savings of the working class especially during 2009 to 2014 under the Central Bank (CB) governorship of Ajith Nivard Cabraal. During that dark era, the EPF was accused of investing in dud companies to rescue various businessmen who had close links with the Rajapaksa family. One notable incident was investing in the now closed down The Finance Company when it was operating with negative net assets. The investment decisions of the Fund are made and executed by the EPF Department of the CB and employees of the Monetary Authority are academically qualified individuals with lucrative financial benefits. Hence, for such an elite set of professionals to make decisions with no concern whatsoever towards the financial security of the working class in the country is quite disgusting.

One of the blunders made by the EPF was to invest in the stock market during the bull run of 2010 when the share prices had reached their peaks disregarding the investment philosophy of Value Investing, which was founded by Benjamin Graham and so successfully practiced by the legendary investor Warren Buffet. Unfortunately, when the market crashed down in 2011 to 2012, the EPF suffered a substantial capital loss. Compounding the matters further, the Fund could not even gain dividends from some of their equity investments as few of its invested companies like Colombo Dockyard did not pay dividends at all.

As per the latest available information, the EPF’s listed equity portfolio is composed of 66 companies and the unrealised capital gain at the end of last September was around Rs. 21 billion. It is incumbent upon the new Government or the Parliament to initiate an inquiry to find out what actually went behind the questionable investment decisions of the EPF during the controversial tenure of Cabraal, something which has been disremembered by many in the country.