That is a distinction that Tan Chong Koay, founder and chief strategist of Pheim Asset Management Sdn Bhd (Pheim Malaysia), can lay claim to.

Tan, 74, has an enviable track record of consistent success in the region’s financial markets over the past four decades. His Pheim Malaysia is the longest serving external fund manager (domestic equity) for the Employees Provident Fund (EPF), having been appointed in 1997, over 27 years ago.

The boutique investment firm Tan founded in 1994 is also EPF’s most successful external fund manager for domestic equities, outperforming the fund’s benchmark in terms of time weighted rate of return (TWRR) by more than 700% over the 27 years.

During the recent EPF External Fund Managers Awards 2023 ceremony, Pheim Malaysia clinched the 2023 Best External Fund Manager for Domestic Equity (Conventional) award for the second year in a row.

EPF has appointed 10 external fund managers, including international agencies, for this segment.

In a statement, chairman Ahmad Badri Zahir said EPF’s panel of external fund managers delivered “commendable results” in 2023 with a record total income of about 22% of the overall income despite facing uncertain and challenging markets.

He revealed that RM189 billion was outsourced to external fund managers to be invested in 2023, representing 17% of the private retirement fund’s total investment assets of RM1.14 trillion.

For 2023, the EPF delivered a dividend rate of 5.5% with a payout of RM50.33 billion for conventional funds and 5.4% with a payout of RM7.48 billion for shariah funds.

In the case of Pheim Malaysia, its simple average return managing EPF funds for 27 years was not less than 30% per annum, while its annualised compounded return since inception was not less than 8.5% per annum.

In an interview with FMT Business, Tan provided a unique insight into how external fund managers play a key role in helping EPF declare dividends that consistently exceed fixed deposit and inflation rates.

Asked how Pheim Malaysia managed to outperform EPF’s benchmarks every year, Tan attributed it to his many years of experience as a fund manager, backed by prudent investment criteria, strong research, and excellent stock picking.

“We have fine-tuned our value investing approach with overlay of our asset allocation strategy to form our investment philosophy: ‘Never fully invest at all times’”.

He said this strategy is ideally suited to handle and take advantage of the highly volatile Asian markets.

“Our investment philosophy and investment criteria have guided us to select undervalued stocks and sell when the market is overheated. This has resulted in us outperforming the benchmarks by a big margin year after year,” he said.

Capitalising on crises 

Tan adhered to his investment philosophy from the first moment Pheim Malaysia was appointed as an EPF external fund manager in April 1997. This date is significant as it was just months before the Asian financial crisis (AFC) hit the region including Malaysia.

“As the Malaysian market was near the peak, we decided to invest gradually. Our decision not to immediately invest EPF’s funds fully turned out to be the right one as the AFC hit us just a few months later,” he said.

For context, the composite index (CI) of the then Kuala Lumpur Stock Exchange (KLSE), the region’s third largest stock exchange after Tokyo and Hong Kong, plunged 75.6% from 1,077.3 points in June 1997 to 262.7 points on Sept 1, 1997.

“We subsequently increased our exposure during the crisis and accumulated many good stocks at substantially discounted prices. As a result, the account performed extremely well in 1998 and 1999,” Tan recounted.

It outperformed EPF’s benchmark by no less than 29% in 1998 and went one better the following year by outperforming the benchmark by 37%, winning EPF’s External Fund Manager awards in both those turbulent years.

Tan, who was bestowed the monikers “Warren Buffett of Asia” and “Southeast Asia’s Small-cap King”, embraces financial crises rather than fearing them. While acknowledging that a crisis creates problems, it also provides opportunities, he explained.

“We’ve sold shares and raised cash before market crashes and bought discounted shares during and after each crash. This strategy has produced outstanding results for Pheim during or after the crashes.”

He said throughout the 27 years, the company has weathered six major financial crises and still outperformed the benchmark set by EPF by a margin of more than 700%. The crises included the AFC, Dotcom Bubble of 2000, global financial crisis (2007/2008), and Covid-19 crash (2020).

“We are humbled by this achievement as we consider this a trust bestowed on us to serve the people of Malaysia,” said Tan, who hails from a tiny village in Kedah.

Despite Pheim Malaysia winning an array of international investment awards over the years, Tan remains relatively unknown outside of the investing community.

Perhaps that is because he keeps a relatively low profile and splits his time between Malaysia and Singapore, where he oversees the operations of Pheim Singapore, which he founded in 1995.

Getting the timing right

Any investor worth his salt would know the Golden Rule – to “buy low and sell high” -, but to actually nail the timing consistently remains a pipe dream for most.

On getting the timing right, Tan believes the primary factor in making money lies in sensing the “general trend”.

“It is more feasible to try to identify a trend upwards or downwards than to attempt to determine the share price. Once you identify the trend, you should make a major move to invest, or maintain the highest cash position.

Nevertheless, he admits to having made mistakes in his investment journey as it is impossible to get it right 100% of the time. Even the world’s most renowned investors like Warren Buffett have gotten it wrong and made losses sometimes, he noted.

“However, the key takeaway is that you as an investor cannot make too many mistakes, and whatever mistakes you make should not be fatal,” added Tan.