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Ms Au Foong Yee, Managing Director, The Edge
Mr Alexander Looijen, Business Manager Lipper – Asia ex Japan, Thomson Reuters
En Azam Aris, Senior Managing Editor, The Edge
Ms Anna Taing, Managing Editor, Personal Money
En Ahmad Zakie, CEO, Federation of Investment Manager (FIMM)
Distinguished guests, members of the media, ladies and gentlemen
A very good morning to you.
Firstly, I would like to thank The Edge and Lipper for inviting me to deliver the keynote address at The Edge-Lipper Malaysia Fund Awards 2013. Over the years, these awards have played a remarkable role in raising awareness of unit trust funds as well as lifting investment management standards through healthy competition. The increasing number of awards given at this event is a clear testament of the growth of this industry. From just above a hundred unit trust funds at the beginning of year 2000, the industry has grown from strength to strength to its current over 580 funds, and 16 million unit trust accounts, making it an important constituent of Malaysia’s capital market and I commend you for your contribution to the growth of the capital market.
Malaysian capital market - growing CIS Landscape
Ladies and gentlemen, as you are aware, the Malaysian capital market’s performance has been very strong with record capital raisings across all market segments in 2012. Similarly, the Malaysian investment management industry also had a strong year. The collective investment schemes (CIS) industry for instance, grew from an aggregate net asset value (NAV) of RM293.68 billion as at end-2011 to RM369.05 billion as at end-2012, locking-in an impressive growth rate of 25.7% for the year.
Unit trust funds, being the largest component of the CIS industry in 2012, recorded a growth rate of just over 18%, growing from an aggregate NAV of RM249.46 billion as at end-2011, to RM294.85 billion as at end-2012, equivalent to approximately 20.1% of Bursa Malaysia’s market capitalisation. This is indeed a strong achievement for the Malaysian unit trust industry.
Apart from unit trust funds, there has been notable growth in other forms of CIS in 2012, in particular, wholesale funds and real estate investment trusts (REITs). For the year 2012, the wholesale funds segment has increased from 133 funds to 171 funds, with its NAV almost doubling from RM27.4 billion to RM52.5 billion. With the listing of IGB REIT, one of
the largest Malaysian REITs by appraised value of above RM4 billion, the aggregate NAV of REITs grew by 32.5% from RM15.4 billion as at end-2011 to RM20.4 billion as at end-2012.
The growth opportunities in the CIS industry continue to be promising in light of Malaysia’s encouraging demographics, expanding workforce and high savings rate, and it is important that we work together to build on these opportunities. The Capital Market Masterplan 2 projects the NAV for unit trust funds to increase to above RM800 billion by 2020, with a penetration rate of above 30%. However, we must also not lose sight that with increasing globalization, we must be able to compete with a larger footprint and scale in order to stay relevant in the region.
One such effort that we are making is working with our regional counterparts to broaden the investment horizon for Malaysian investors beyond our shores to ASEAN as a whole. I am pleased to say that there has been good progress in the efforts of the ASEAN capital market regulators in promoting greater regional cross-border flows and to build brand recognition of ASEAN as an asset class. One of the key initiatives being worked on is to facilitate the cross-border offerings of CIS. The first participants will be Malaysia, Singapore and Thailand. Under this initiative, a CIS approved as ASEAN CIS-compliant by an ASEAN regulator can be sold within participating ASEAN countries through local intermediaries. This presents an exciting new opportunity to offer neighboring countries our Malaysian CIS products including our very wide range of Shariah-compliant funds. It is essential therefore, that the industry develops new products which have regional appeal and continuously builds skill-sets and expertise to compete regionally.
Private Retirement Schemes - Changing the retirement landscape
Ladies and gentlemen, another important milestone in our efforts to expand the array of capital market products was the launch of Malaysia’s private retirement schemes or PRS in 2012. As part of wider Government reforms and in recognition of rising living standards and life expectancy, PRS funds were first offered to the market from November last year to
supplement mandatory savings.
Studies have shown that Malaysians, including the self-employed, are not saving enough for their retirement needs. This, coupled with low income replacement ratios, makes PRS an important avenue for accumulating retirement savings under a well-supervised and regulated framework. With the right enabling environment over the long term, PRS should not only extend coverage to wider segments of the population but also help individuals maintain living standards during their golden years.
PRS represents a new growth segment for the capital market. It provides an additional source of capital to increase the liquidity and vibrancy of the capital market. Over the next ten years, it is projected that assets under management in the private pension industry will grow to RM30.9 billion. Under the PRS, savings are assured to be utilised primarily for retirement as the bulk of the investments would be locked in, with 70% of all contributions not withdrawable until the retirement age. A tax incentivized environment has also been introduced to help individuals build their retirement funds as well as to encourage employers to contribute on behalf of their employees.
Because PRS is a voluntary scheme, investor understanding and awareness are critical to their participation and the success of PRS. A shift in mindset is also required for individuals to start thinking about their retirement goals. In this respect, investor education is one of the main roles of the Private Pension Administrator that was established last year. It is essential that the industry, the SC and the PPA work hand-in-hand to create awareness of the benefits of PRS through media and awareness campaigns.
From the 8 approved Providers, the SC has approved 8 Schemes offering 29 funds. These include 9 Islamic funds. As at end January 2013, there are about 23,000 accounts.
Investor protection measures via Sales Practices Guidelines
Ladies and gentleman, the trust that has been built in our capital market must be maintained. This trust affords us the freedom to bring the capital market to greater heights. The global financial crisis and experience from around the world has demonstrated that there is a need to maintain vigilance over the markets to preserve this trust and confidence. Although our capital market has shown resilience throughout the recent financial crisis, we must learn from other markets where inappropriate selling practices and disclosure issues have led to investors losing their life savings and even worse, creating a sense of mistrust of the investment world. To prevent such incidences from happening in Malaysia, both the SC and the industry must take pre-emptive steps. Measures must be taken to ensure that intermediaries assume greater responsibilities for their conduct while recognising that investors too must take greater responsibility for their investment decisions.
High standards of conduct must be upheld by product issuers and product distributors. The SC recently released the Guidelines on Sales Practices of Unlisted Capital Market Products to promote responsible conduct in the development and sale of unlisted capital market products, which include unlisted CIS. Implemented properly, these guidelines will help product issuers and product distributors ensure that their businesses are properly conducted and contribute to greater investor confidence.
Another important aspect of the Sales Practices Guidelines is the imposition of a duty on the product distributors to undertake a suitability assessment before recommending a product to an investor. The Sales Practices Guidelines also enhanced investor qualification requirements and introduced new categories of investors, namely accredited investors, high net-worth entities and individuals, and retail investors. This allows the SC to adopt a more liberalized framework for certain segments of the market. Consequently, the SC will be reviewing the authorisation framework for wholesale funds with a view of ensuring speedier time to market.
Enhanced disclosures – empowering the investor
Ladies and gentleman, to enable investors to take responsibility for their investment decisions, it is vital that they are empowered with the requisite knowledge as well as an understanding of the information presented to them. Offering documents therefore, should be simple and easy to understand.
It is important to remember that disclosures are meant to inform. To be informed, the reader must be educated and guided by the information rather than merely being told. The indiscriminate use of boilerplates and an enthusiastic quest for legal cover have resulted in so much information being offered to the extent that investors are inundated and the key
messages are lost. In assessing the clarity of disclosures, the SC tests how the “man-on-the street” would interpret the disclosures. Often, our findings confirm that there is too much emphasis on “tell” rather than “inform”.
It has become apparent to us that minor modifications of our disclosure requirements will be insufficient to bring about the change required on how disclosures are made. The industry must be guided by a refreshed disclosure philosophy that is able to accommodate the growing CIS landscape with its ever-increasing variety and complexity. At the same time, such philosophy must recognise the breath of the investing public who come from all walks of life bringing different standards of education and language. Formulating this disclosure philosophy is no easy task.
I am pleased to inform you that the SC has embarked on an initiative to revamp the disclosure requirements for offering documents. To this end, an industry consultative committee is being set up by FIMM to work together with the SC on this initiative.
Conclusion
We have seen strong growth in the unit trust industry over the past decade which demonstrates your ability to continually innovate, exhibit high professional standards and services, and apply effective marketing strategies. The future growth path for this industry is promising, and with the right enablers, I am confident that we are poised for greater growth in tandem with the growth projected in CMP2 for the Malaysian capital market.
20. Thank you for your attention, and once again, congratulations to all the award winners this year.
Thank you.
