Islamic, wholesale funds drive Malaysia AUM growth

The country's funds industry expanded amid tricky conditions last year, by Securities Commission figures, but investors are told to brace for lower returns in 2016.
Islamic, wholesale funds drive Malaysia AUM growth

Despite tough market conditions, Malaysia’s funds under management grew 6% last year to RM668 billion ($163 billion) from RM630 billion in 2014, according to the Securities Commission’s annual report. Among the main contributors to this were Islamic assets and the wholesale fund segment.

While this positive news will provide welcome respite from negative market sentiment globally – and the 1MDB corruption scandal still making headlines locally – 2016 is tipped to be yet more challenging for Malaysian investors.

Meanwhile, the regulator plans to launch several initiatives this year, including the Islamic Fund and Wealth Management Blueprint, measures to expand the offering of bonds and sukuk to the retail market, a revised corporate governance code, and a peer-to-peer lending framework.

Unit trust funds remain by far the biggest segment of AUM in Malaysia, but grew less than 1% to RM346.41 billion last year. However, wholesale funds – which are sold to sophisticated investors – saw the fastest increase by fund category, rising 15% to RM84.99 billion.

Cross-category Islamic AUM also outpaced industry growth, rising 19.7% to RM132.38 billion from RM110.6 billion, and accounting for 19.82% of overall AUM, up from 17.56%.

Moreover, funds under the three-year-old state-backed private retirement scheme (PRS) expanded 62.5% to RM1.17 billion. The number of PRS members also grew significantly to 180,651, up 40% from 2014.

The overall asset allocation of funds remained similar to the previous year: 49.23% in equities (48.10% in 2014), 20.56% in fixed income (20.00%), 23.41% in money markets (26.11%), with the remainder split between unit trust, private equity and ‘other’ assets.

The growth of the funds industry reflected the expansion of Malaysia’s overall capital market, which expanded 2.1% to RM2.82 trillion. The equity market swelled by 2.6% to RM1.70 trillion, while the bond and sukuk market grew by 1.4% to RM1.12 trillion.

While the 2015 figures are commendable given the environment, the coming year will be much more challenging in terms of managing investor expectations, said Chan Ai Mei, chief marketing officer at Affin Hwang Asset Management in Kuala Lumpur.

“Investors should understand that return expectations will likely be required to be adjusted given the current low-growth and low-interest-rate environment,” she noted.

Affin Hwang will continue to advocate evergreen strategies to weather various market cycles, added Chan. She argued that with investors on the hunt for yield, income-focused solutions would be a good fit in the current environment.

One piece of SC reform last year to have benefited asset managers is the introduction of the lodge-and-launch framework, which shortened the approval regime for wholesale funds, said Chan. Affin Hwang first used the system on June 15 last year, and has used it to launch 17 wholesale funds.

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