Lipper Fund Awards 2019
25 March 2019   |   By : Mr. Eugene Wong, Managing Director, Securities Commission Malaysia

Lipper Fund Awards 2019
Monday, 25 March 2019
Keynote Speech by Mr. Eugene Wong,
Managing Director, Securities Commission Malaysia

 

 

Dato’ Ho Kay Tat, Publisher and Group CEO, The Edge,
Mr Xav Feng, Director of Lipper Asia Pacific Research,
Mr Kaleon Leong, CEO of The Federation of Investment Managers Malaysia (FIMM),
Distinguished guests,
Ladies and Gentlemen,

 

1.

First and foremost, I would like to thank the Edge and Refinitiv for inviting me again to deliver the keynote address at this prestigious event.

2. Last year, I shared with you three key trends which I felt could not be ignored – sustainability, technology and the changing investor profile. Today, I would like to take the opportunity to revisit how two of these trends have developed since then.
3.

Let me first start with sustainability. It is clear that sustainability is becoming more important by the day. In the US, assets under management (AUM) using sustainable and responsible investment (SRI) strategies grew from USD8.7 trillion in 2016 to USD12 trillion in 2018, representing 26% of assets under management (AUM).

The European Sustainable Investment Forum (Eurosif) reports that growth in the European SRI retail market increased by 800% from 2013 to 2018. Millennials will be a driving force behind this SRI push. Indeed, a Schroders survey shows that 52% of millennials often or always invest in sustainable investment funds as opposed to 40% of Gen X and 31% of Baby Boomers.

4.

The impact of sustainability is a reality that even asset managers and investors who do not believe in its cause cannot ignore. This is because assets and businesses that damage the environment or are detrimental to sustainability may lose their economic value and have to be impaired or become stranded.

5. In November 2017, the ASEAN Capital Markets Forum had launched the ASEAN Green Bond Standards (GBS) and PNB Merdeka Ventures had the distinction of being the first issuer under the ASEAN GBS. Since then, there have been a total of eight issuances under the ASEAN GBS by issuers from Malaysia, Singapore, Thailand and the Philippines. Indonesia’s USD1.25 billion green sukuk that was issued in February 2018 was also aligned with the ASEAN GBS. In October last year, the ACMF launched the ASEAN Social Bond Standards and the ASEAN Sustainability Bond Standards. There has already been an issuance under the ASEAN Sustainability Bond Standards and we are looking forward to more issuances.
6. The role of SRI is increasing in importance and SRI will contribute significantly to making our world a better place to live in. In this respect, fund managers must educate investors about the benefits of SRI as well and create more SRI opportunities for them.
7. The second trend I spoke about was technology. Technology continues to influence the fund management industry in unprecedented ways, including through new and previously unthinkable business models. In November 2018, the SC issued the first Digital Investment Management license in Malaysia. Robo advisory services will provide a new avenue for investors to invest conveniently and at lower costs in terms of both sales charges and management fees. More new business models will emerge with technology and paradigms will keep shifting.
8.

But paradigms don’t just shift solely because of technology. They also change because of the changing preferences and demands of customers. Take passive investing for example. Seen to produce returns no less inferior (or even better!) than actively managed funds and easy to access, they have seen a significant inflow of funds at the expense of their actively managed cousins.

Moody’s recently predicted that passive investing will overtake active investing in the US by 2021, with its market share moving from the current 36.7% to more than 50%. In Europe, it is expected to expand to 25% by 2025 from the current 14.5%. Cost is a major driver with some quarters estimating that passive investing has saved investors a staggering USD1 trillion in fees.

9. Nevertheless, I believe that actively managed funds have an important role in the financial markets. Actively managed funds support fair valuation through their investment research. This research benefits the entire market as well as passive funds. The participation of actively managed funds in IPOs help capital formation and price discovery.
10. Actively managed funds can also help promote good corporate governance if they monitor their investments and exercise voting rights. While all funds are meant to vote on shares they hold for the benefit of their investors, the passive and low cost approach taken by index funds may lead to management and boards not having to be accountable to anyone.
11. However, in order to continue to attract capital, actively managed funds need to relook at how they can draw investors with their value proposition, including returns vs. cost.
12.

The SC recognises the importance of the fund management industry and the crucial role that it plays. As such, the SC will continue to collaborate with it to benefit all stakeholders. Such collaboration requires trust and commitment from both sides, and the rewards are well worth it.

Take for example the Expedited Authorisation Process introduced in July 2016. In order to enable the framework, both the SC and industry had to invest in ensuring that there would be a consistent standard applied by all industry players. However, the payoff from this initiative speaks for itself. From December 2016 to February 2019, 55 funds were authorised within the ten business days timeline. Two funds were authorised within 11 business days while another was resubmitted. We hope to be able to introduce more initiatives to make things more efficient and effective with the right level of accountability.

13.

Shakespeare said “Brevity is the soul of wit” and I know I was given five minutes for my keynote for me to have the opportunity to demonstrate my wit. Now that I have met this performance benchmark, let me end here so that we can get to the real stars of today – the winners. With that let me congratulate the winners, and thank the Edge and Refinitiv for organising this event.

1Global Sustainable Investment Review 2016, GSIA. http://www.gsi-alliance.org/wp-content/uploads/2017/03/GSIR_Review2016.F.pdf. Page 7
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