The changing preferences of investors was rated as the most critical external shift affecting the business of Malaysian asset managers over the next 12-to- 24 months, according to a survey of the country’s fund management industry by the Institute for Capital Market Research (ICMR) Malaysia.
Domestic asset managers expect increasing demand for socially responsible investing (SRI) funds, private mandates and wholesale funds as well as non-domestic equities and alternatives, according to a report by the Securities Commission Malaysia-backed think tank, which was compiled with the help of the Nomura Institute of Capital Markets Research.
The ICMR’s report emphasises that while the country’s fund management has grown rapidly in the last decade, there are signs of a slowdown amid structural changes that will likely alter the business landscape for asset managers in the future.
These include changing demographic trends and investor preferences, the advent of digitalisation, availability of talent, as well as changes in market regulations and structure.
“The asset management industry needs a revitalisation and more innovation, given the fast changing economic and financial landscape,” said Datin Azleen Osman Rani, director of the ICMR, in a statement accompanying publication of the report.
Talent gap
Moreover, those expected shifts in investors’ preferences are into areas where there are the most critical deficiencies in local talent.
The survey found the mismatch between investors’ aspirations and the skills available to meet them was striking across all international asset classes. Only local equity and fixed income expertise were sufficient to satisfy demand.
Value Partners is one of the few foreign managers with a Malaysia office. It was opened in 2018 in order to develop shariah funds.
In terms of products investing in Malaysia, two actively-managed equity funds are authorised for sale to retail investors in Hong Kong and Singapore: the Fidelity and JP Morgan Malaysia funds. They have three-year cumulative returns (in US dollars) of 12.01% and 15.28% respectively, underperforming the sector average (28.34%) of single country Southeast Asia funds (and Australia).
Domestic managers launching offshore funds are also limited. There are only 11 funds domiciled in Malaysia that are authorised for sale in Singapore, with the majority from CIMB’s asset management arm, according to FE data. One additional fund from RHB Asset Management is authorised for sale to Hong Kong retail investors, the RHB – Islamic Regional Balanced Fund.
“There is a need to look at how asset managers can internationalise by tapping on the growing wealth in emerging markets as well as attracting foreign inflows to diversify the investor base,” according to the report.
“This could be achieved through further regulatory harmonisation efforts as well as private sector driven initiatives such as cross-border M&A or partnership structures.”
In addition, the report stressed the need for asset managers to adopt long-term digital strategies – 89% of asset managers envisage that digitalisation will highly impact their business growth in the next 12 months – while suggesting ideas “to bridge the fintech and traditional player divide”, such as micro-investing and links with mobile payment systems as well as for traditional asset managers to tap into accelerator programmes for startups.
Other recommendations include the adoption of specialised strategies such as ESG, Islamic and SRI, strengthening distribution channels, and improving financial literacy across society.
Fidelity Malaysia and JP Morgan Malaysia funds vs MSCI Malaysia ETF and Asia-Pacific single country average*
