Asset Allocation and Performance of Malaysian Civil Service Pension Fund

Abstract

Managing pension assets for defined benefit plans is a dynamic optimisation process between the strategic allocation and the future liabilities obligations. A pension fund's optimal asset and liability structure will eventually determine the pension fund's performance. This study examines the Civil Service Pension Fund, or Malaysia Incorporated Retirement Fund (KWAP). Using the data from 2007 to 2018, our results show: First, KWAP has invested in five main asset classes. Its asset allocation strategy shows an increased risk tolerance with greater weight in equities. Second, real estate is the most performing asset class that contributes the highest ROI, followed by equities. Third, the investment performance of KWAP has deteriorated since 2007 as measured by Sharpe Ratio and M-squared. Fourth, the KWAP is still conservative based on the efficient frontier. It invests mainly in domestic fixed income and local equities. As a policy implication, the KWAP should diversify into an international portfolio as recommended by Capital Market Line.