Malaysia’s rapidly growing economy has produced a large pool of upper middle income households. With the growth of the Malaysian capital market outpacing the economy since 2000, the value of the capital market has increased tremendously from RM718 billion to RM3.09 trillion as at 30th June 2017.
Also, Malaysia’s Islamic capital market has grown to become a pivotal contributor as it constitutes 60% of the Malaysian capital market as at end of June 2017. Islamic securities stood at RM1.86 trillion out of the total of RM3.09 trillion.
Malaysia’s fund management industry maintained its upward growth since 2016 with total assets under management (AUM) increased by 7.3% from RM696.3 billion as at end December 2016 to the first half of 2017 with an amount of RM751 billion.
In addition, since 2010 to end of December 2016, Malaysia’s AUM recorded a compounded annual growth rate (CAGR) of 10.8%. Total AUM of licensed fund management companies (FMCs) in Malaysia rose by 4.25% in 2016 to RM696.27 billion as compared to RM667.8 billion in 2015.
A key contributor to the growth in fund management has been the expansion of collective investment schemes (CIS) with unit trust funds continuing to be the largest component of the Malaysian CIS industry. A total net asset value (NAV) of RM409 billion was recorded as at 30th June 2017 for unit trust funds which represents an increase of 18% from RM346.58 billion as at end of 2015. Unit trust funds accounts for 54% of Malaysia’s total AUM of RM751 billion.
In addition, Malaysia has various sources of funds under management that provides for diversified product offerings. The sources of funds are real estate investment trusts (REITs), private pension funds, Employees’ Provident Fund (EPF), private retirement schemes (PRS) and unit trust funds.
By providing benefits of portfolio diversification, greater availability of CIS products have played an important role in broadening access to retail investors, enabling them to participate in different segments of the Malaysian capital market depending on personal preference.
Islamic Fund Management – Malaysia, a global centre.
As mentioned, Malaysia’s Islamic capital market contributes tremendously to the overall capital market making it one of the leading global centres for Islamic wealth management.
Malaysia offers a variety of Islamic assets and securities which include Shariah-compliant equities, sukuk and Islamic money market which facilitates the establishment of Islamic CIS. Islamic AUM accounted for RM143 billion from a total of RM751 billion as at 30th June 2017, representing 19% of Malaysia’s total AUM.
Islamic wealth management encompasses all customer segments, as it benefits those seeking to preserve and enhance their wealth within the Shariah framework or based on an ethical perspective.
Recognising the importance of this market segment, Securities Commission Malaysia (SC) introduced a comprehensive review and a set of measures to promote further growth of the Islamic fund and wealth management industry in January 2017, titled the Islamic Fund and Wealth Management Blueprint. This is to establish and strengthen bilateral and multilateral arrangements for cross border offering of Islamic funds are on-going with a view to promoting further expansion of markets, thereby providing new opportunities for Islamic fund and wealth managers to grow their businesses.
Sustainable and Responsible Investing
In recent times, global developments impacting our market have been driven by a shift in motivation behind their investment objectives. Facing environmental threats, like in most countries, in Malaysia investors demand more products and services that conform to environmental standards and also social and governance (ESG) factors. This has created a momentum in the growth of Sustainable and Responsible Investment (SRI).
With continued growth in the fund management industry, the increasing demand for SRI has made fund managers and investors, sophisticated or individual, become more committed towards investing in products that meet ESG criteria. This encouraging development is further enhanced by the introduction of the Sustainable Development Goals 2030 (SDG) – 17 Goals to Transform Our World, published by the United Nations and the Paris Agreement on Climate Change (COP21) in December 2015 with Malaysia being one of its signatories. This will result in more sustainable projects in the future.
According to the 2016 Global Sustainable Investment Review, Malaysia is the largest market for sustainable investment in Asia excluding Japan with a market share of 30% followed by Hong Kong at 26% and both South Korea and China at 14%.
Principles of Islamic Finance mirror those of SRI
With its commonalities, SRI and Islamic wealth management is fast becoming a key consideration and requirement by investors and will drive growth in asset management in the coming years to come. They provide considerable opportunities for greater alignment between these two segments. Leveraging Malaysia’s global position in the Islamic capital market will further drive the growth of this new segment.
In line with this, efforts are being taken in order to develop the ecosystem for SRI in the Malaysian capital market. To widen SRI asset classes, SC introduced the SRI Sukuk framework in 2014 in order to facilitate the financing of SRI initiatives. The introduction of the SRI Sukuk framework is in line with SC’s initiative of Capital Market Masterplan 2. It is part of SC’s developmental agenda to facilitate the creation of an ecosystem conducive for SRI investors and issuers and is also in line with the rising trend of green bonds and social impact bonds that have been introduced globally to facilitate and promote SRI.
The SRI sukuk framework is an extension of the sukuk framework.
As a whole, SRI funds will encourage good corporate governance and responsible corporate practices. More importantly, institutional and retail investors will benefit from a combination of financial and social returns.