Looking beyond Malaysia

Norlia Mat Yusof, chief investment officer of Etiqa.
Looking beyond Malaysia

Norlia Mat Yusof is chief investment officer of Etiqa, the insurance and takaful arm of state-owned Maybank Group in Kuala Lumpur. The institution has RM 22 billion ($6.96 billion) in assets under management, up from RM 16.5 billion in 2007. It offers life, family takaful and non-life cover, with the main non-life focus being on fire.

She has spent most of her career managing insurance assets, including eight years running the investments unit at Mayban Life Assurance.

Q What are your main investment objectives?

A We start by analysing our risk tolerance to come up with risk parameters and thereby establish limits for the investment team. Our aim is to maximise returns within these limits that are commensurate with the policyholders’ requirements and objectives.

Every year we set the target investment return. We are required to outperform the identified benchmark for each asset class. For example, we use the FTSE Bursa Malaysia 100 for equities.

Our insurance funds are divided into proprietary (such as participating and non-participating) and investment-linked funds.

The proprietary funds have an absolute-return mandate based on the targeted return on investment. Equity return is based on realised ROI; fixed-income securities are to be held to maturity for asset-liability matching purposes.

We benchmark our investment-linked funds based on peer ranking.

Q What is your asset allocation?

A Fixed income accounts for some 80% of the portfolio and comprises cash, money-market funds, structured deposits, negotiable certificates of deposits, low-risk assets and secured and unsecured bonds. Equities and property make up 20% of the allocation.

The bulk of our investments are in domestic assets. Less than 1% of our total portfolio is invested in foreign-currency assets. The biggest overseas investments are in equities.

Also, Etiqa is the biggest takaful company in world, with RM8.6 billion [39% of AUM] in sharia investments.

Q What are your fixed-income criteria?

A We largely invest in at least double-A securities, but our mandate lets us buy corporate and sovereign debt of single-A and above. Our single-A exposure is mostly in banking and financial institution bonds.

Q And how about your criteria for equities?

A One is market cap – typically we don’t buy companies with market cap below RM500 million, but if we really like a stock, there can be exceptions. Other criteria include liquidity, valuations and gearing.

We might invest in a small-cap of, say, RM100 million market cap, but if it’s highly illiquid, it must have very strong fundamentals, so that we are comfortable holding it for a very long time.

Investment restrictions are usually not cast in stone, as long as we have strong justification for buying.

Q How about your property portfolio?

A It’s all in domestic assets and stands at around RM700 million, or 3% of AUM, all in direct investments. The central bank allows us to invest up to 20% of the portfolio in property.

Our allocation is likely to increase in the next one to two years, but we have no specific target now. This will initially be into domestic assets.

Q Would you consider alternative investments such as hedge funds?

A We are not keen on hedge funds. As a big player in principal-guaranteed investment-linked products, we do have some exposure to alternative investments such as commodities.

Q What about foreign bonds?

A We own bonds issued by foreign companies, but only denominated in ringgit. Foreign bonds must be rated at least equivalent to Malaysia’s A–  sovereign rating. The options we look at are Australia, Hong Kong, Japan, Singapore, South Korea and some Middle Eastern countries. We haven’t bought European or US bonds yet, but we may do so in the future.

Q Do you have limits on overseas investments?

A Under central bank guidelines, each of our insurance funds can have up to 10% in foreign assets. Our next strategy is to look at investing more overseas.

There are two parts to our foreign portfolio: proprietary money and the principal-guaranteed investment-linked side. The proprietary money is in plain-vanilla investments such as foreign mutual funds and equities.

The principal-guaranteed investment-linked funds are typically in assets that give exposure to global investment trends.

Q How much is in funds?

A At any point in time we have RM2–3billion in closed-end funds. In open-ended products, we have RM700 million to RM1 billion.

Our closed-end principal-guaranteed products tend to mature after three or four years. They are relatively short-tenor, due to the current low fixed-income yield. Also, demand from clients is for shorter maturities at the moment.

Q How is the investment team set up?

A It is different from that of some of our peers, in that we have a dedicated research unit. At other firms, fund managers often double up as analysts. There are 27 people on our team; 17 in fund management (nine for bonds and eight for equities) and 10 in research. We also have a dealer whose sole responsibility is to execute equity trades.

Q Do you use external fund managers?

A We outsource very little  investment management. We only outsource to Singapore fund managers, with about RM275 million in equity and fixed income.

But as we invest more in foreign assets and potentially alternatives, we will probably need to engage fund managers either within the Maybank Group or external parties.

In the short to medium term, we are likely to buy more Asia-Pacific bonds and equities, but probably nothing more sophisticated for the time being.

Q What challenges do you face investing offshore?

A Investing more offshore means greater currency risk. We would start out 50% FX-hedged for both bonds and equities, and would hedge fully if we are feel currency movements warrant it. How much we hedge depends on each currency – if we like the currency, we may not hedge at all. In addition, our products and solutions team actively manages market and liquidity risk for tactical asset allocation purposes.

Q Etiqa’s investments were recently split out from being managed alongside third-party funds. Will this affect how they are managed?

A It’s a big advantage having the insurance/takaful portfolio managed purely by fund managers with an insurance fund/takaful mandate. It also helps us better develop insurance and takaful products.

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