The fund management industry has to adapt to changing investor preferences for alternative assets and Socially Responsible Investing (SRI). Furthermore, retirement security has emerged as a national concern.
As a result, by learning more about investor behaviour, there is an opportunity to enhance Private Retirement Schemes (PRS) PRS offerings and reduce the retirement savings gap.
This was the sentiment put forward by Securities Commission Malaysia (SC) Chairman Dato’ Seri Dr. Awang Adek Hussin in his key note address at the ‘Virtual FIMM Annual Convention and Industry Education Series’ today (Oct 17).
At the FIMM Annual Convention today, the SC Chairman said several measures introduced by the SC in March have facilitated fund management efficiency and widened their investment universe, while Exchange-Traded Fund (ETFs) and PRS were also liberalised last month, allowing retail funds to have exposure to digital assets, investment accounts and investment notes. Similar plans are intended for the wholesale fund market as well.
“In anticipation of the growth in SRI funds, the Securities Industry Development Corporation (SIDC) will launch an SRI Certification for market professionals in 2023, focusing on fund distributors such as unit trust and PRS consultants.
“The SC has met with key stakeholders in the PRS industry to discuss potential policies and possible applications of new product features. These insights are being used to design pilot projects with industry players and the Private Pension Administrator Malaysia (PPA), Dr. Awang Adek added.
He called on market intermediaries to continue to act in investors’ best interests. The SC will pursue enforcement actions against consultants who engage in misconduct and mis-selling. And, as a self-regulatory organisation, FIMM must continue to hold “bad actors” accountable for investor rights and interests.
Held under the theme “Re-Set,” Federation of Investment Managers Malaysia (FIMM) chairman Mohd Ridzal Mohd Sheriff said as the outlook ahead remains challenging, it is necessary to reset focus and expectations to ensure continued industry relevance and resilience.
“Malaysia’s fund management assets have more than doubled since 2010, to RM951 billion (as at end 2021), as more savings were mobilised through the capital market. It was also a period of rising asset prices, supported by easier monetary and financial conditions. Despite this strong growth, the unprecedented events over the last two years, serve to remind us all that the status quo can shift rapidly.
“Today, it is a far different economic and financial landscape that we face. Rising global interest rates have tightened market liquidity and heightened volatility. This has negatively impacted net asset values,” said Mohd Ridzal.
He added, being one of our oldest and largest market segments, the unit trust industry must, first and foremost, adapt to changing demands. The search for returns, has seen investor preferences shift, from conventional products towards alternative assets and sustainable and responsible investments (SRI).
Going forward, this trend is likely to continue, alongside further product innovation and a higher interest rate environment. Therefore, it is important that fund intermediaries continue to ensure that sufficient processes and safeguards are in place, to manage risks from these emerging asset classes.
Areas Of Opportunities Moving Forward
Dr. Awang Adek said from a product standpoint, the SC introduced several measures to facilitate greater efficiency in fund management and this coincides with the move to a principles-based approach. Similar liberalisation measures were also extended to exchange-traded funds (ETF) and private retirement schemes (PRS) last month.
With these changes, a retail fund is now permitted to have some exposure to digital assets, investment accounts, and investment notes. This will enable individual investors to gain exposure to alternative assets. We intend to allow the same for the wholesale fund market as well, he said, adding, sustainable investments are another asset class in high demand.
Domestically, SRI funds have grown more than seven-fold between 2019 to June this year. Its attractiveness lies in its risk diversification benefits, as well as its ability to meet the social impact needs of investors. And, in anticipation of a significant growth in SRI funds, the Securities Industry Development Corporation (SIDC), will introduce SRI Certification for Market Professional in 2023.
The certificate will enhance industry capabilities, particularly those involved in fund distribution, such as unit trust and PRS consultants. After all, better equipped intermediaries will raise investor confidence and participation in the SRI asset class.
He added, post-pandemic, retirement adequacy has emerged as a pressing national concern. It also presents an opportunity to enhance PRS offerings, through better understandings of investor behaviours, and reduce the retirement savings gap.
Investor Protection Remains A Priority
Dr. Awang Adek cited, “Even as the industry moves to take advantage of opportunities, I would like to remind market intermediaries to continue to act in the best interest of their investors. The SC will not hesitate to pursue enforcement actions for misconduct and mis-selling by consultants.
“In fact, we have issued penalties of more than RM4 million from 2020 to 2022. In terms of conduct, the SC has acted against consultants for failure to explain the unit trust fund marketed, for providing performance guarantees, unauthorised transactions on client accounts, and issuing false or misleading information.
The SC Chairman said in resetting priorities and expectations, it is important not to lose sight of where we are heading and how to get there. For the SC, the end objective is to ensure a relevant, efficient and diversified capital market. This calls for a resilient and sustainable fund management industry, one that is equipped to capitalise on opportunities and address future challenges.
