MVCA Annual Dinner and Awards Night 2019
24 April 2019   |   By : Datuk Zainal Izlan Zainal Abidin , Deputy Chief Executive, Securities Commission Malaysia

Keynote Address
By Datuk Zainal Izlan Zainal Abidin
Deputy Chief Executive
MVCA Annual Dinner and Awards Night 2019
24 April 2019, Kuala Lumpur

 


 

Assalamualaikum warahmatullahi wabarakatuh and a very good morning.

1. First of all, I wish to thank our gracious host, the Malaysian Venture Capital & Private Equity Association, MVCA, for inviting the Securities Commission to be part of tonight’s event including for this opportunity for me to speak. It is my first time attending an MVCA Annual Dinner and I am indeed honoured to be here with all of you for this auspicious occasion.
2. As I’m very conscious that I’m standing between you and dinner, I’ll try to keep my address relatively short and hopefully sweet.

A challenging 2018 but with some bright spots in the horizon

3. 2018 was a very challenging year with significant headwinds globally and regionally affecting business and investor sentiment. Global capital markets, especially public equities, ended weaker in 2018 with the Malaysian equity market capitalisation contracting by 10.5% to RM1.7 trillion in 2018 from RM1.9 trillion the year before. 1
4. The Malaysian private markets were not spared and were similarly impacted, experiencing a decrease in total committed funds under management for private equity and venture capital2 from RM7 billion to RM6 billion in 2018. Despite the relative gloom in fund sourcing, our statistics did reflect bright spots in this industry, which injected some level of optimism.
5. The most significant would be the size of VC investments during 2018 which amounted to RM613mil3 , 46% higher than what was recorded in 20174 . In fact, this is the highest figure recorded over the past 10 years. A total of 117 investee companies received equity financing in 2018. Similarly, investments in SMEs on equity crowdfunding and peer-to-peer financing platforms had risen from RM56.7 million in 2017 to RM195.1 million in 20185. These numbers are indeed encouraging and demonstrate the capital market’s significant role in serving the needs of SMEs, which form the backbone of our economy.
6. Southeast Asia continues to attract global investors, particularly LPs looking for emerging market opportunities6. Deal activities in Southeast Asia reached new highs with an estimated US$12.4 billion raised in 20187. While the bulk of these figures may be due to regional unicorns, it does reflect a maturing start-up ecosystem in the region.
7. High net worth investors and long term institutional funds, looking at alternative investments in their hunt for alpha during these turbulent times, have shifted their attention to private markets. I am pleased to note that some of our players have successfully secured fund commitments domestically8 and regionally9 and that some regional PE firms are also looking to commit significant amounts to Malaysian opportunities10.
8. With this promising development, we’ve seen increased interest in new VC and PE firms to establish offices in Malaysia. Over the course of 2018, we saw 14 new registrations for both VC and PE, with more enquiries to register with the SC. It is our aim that the entry of foreign players to the industry comes with transfer of skills and deepening of industry professionals which currently stands at 235 professionals having at least four years of experience.

SC’s continued commitment to industry development

9. The SC, as part of our developmental mandate, will continue to pursue an inclusive and sustainable growth agenda, and facilitate innovation for the capital market. Our Chairman, Datuk Syed Zaid Albar, recently spoke on SC’s key priorities in the near term, one of which is our focus on strengthening alternative financing avenues to meet the funding needs of SMEs.
10. Key to this is our efforts in attracting greater private sector investments into this industry, one of which is through enhancing tax incentives to encourage corporate participation into qualified VC funds. As many of you would be aware, our approach towards developmental initiatives for the industry has always been holistic and interconnected to address multiple issues. For example, tax incentives for corporates is not only meant to encourage risk capital allocation by such corporates for purposes of diversification and generating returns, but is also aimed at scaling up local VC managers which would invest into SMEs involved in the government’s promoted sectors, paving our way towards achieving a high income value add economy.
11. Similarly, when the SC issued a request for submission for risk capital investments from major institutional investors11, it comes with the requirement that managers receiving the allocation must be based domestically and employ local professionals in their investment-related functions, the objective of which is to facilitate skills transfer. In short, our developmental efforts are multi-pronged and meant to achieve different outcomes and collectively strengthen the different stakeholders, creating a win-win situation for all, within the ecosystem.
12. While the SC strives to do its best to elevate, steer development and create a vibrant ecosystem for the VC and PE industry, collaboration with industry stakeholders would be critical to ensure effective implementation of initiatives which are fit for purpose. On this note, I am pleased to highlight that the Malaysian Venture Capital and Private Equity Development Council (MVCDC), chaired by the SC, is the main platform to co-ordinate efforts.
13. With high level inter-ministerial participation combined with private sector representation, it serves the purpose of identifying vision and providing strategic direction for the industry. The Minister of Finance had recently approved the appointments of its Members and we hope that they would bring fresh perspectives and provide undivided support to efforts of the Council. At its next meeting, the MVCDC will be engaging its Members to deliberate on the various recommendations12 on measures to catalyse growth of the VC ecosystem.
14. Expectations on the MVCDC are very high and we are indeed delighted to have MVCA represented by its Chairman, Victor Chua, as one of the new Council member. Not to put pressure on Victor’s shoulders, but we hope to see MVCA strengthen itself as the industry champion, playing a key role in creating awareness and promoting the Malaysian VC and PE industry regionally.

Leveraging Malaysia’s strengths to develop the Islamic Economy

15. Another growth area with significant potential is the Islamic Economy, which is projected to grow to US$3 trillion in 2023. Malaysia has the first mover advantage in developing this niche segment culminating in our leadership position in Islamic Finance. Our ecosystem which is well developed and supported by a deep pool of Shariah advisers, clear and efficient Shariah certification process, has facilitated businesses to fundraise via instruments that meet expectations of Shariah-conscious investors.
16. Venture capital and private equity financing exemplifies the Islamic finance model based on long-term active partnership and risk sharing consistent with the principles of mudharabah and musyarakah. Facilitating risk capital investments is aligned with Malaysia’s initiative to be the centre for Islamic banking, takaful and Islamic asset and wealth management. The development of this segment will contribute substantively to the broadening of product and service offering for the fund and wealth management industry in Malaysia.
17. The growth in the number of affluent and High Net-Worth Individual Muslims globally13 will create greater demand for Shariah-compliant asset class, which augurs well for the Islamic VC and PE industry. These investments can then be channelled to products and services catering to the needs and lifestyle of Muslim consumers in sectors such as food & beverages, apparel, travel and tourism, financial services, cosmetics and healthcare.
18. Given Malaysia’s position as one of the global leaders in the Halal industry14, I would urge you to seize the opportunity in this untapped segment which recently has received a big push due to its alignment with sustainable and responsible investing, which is also another priority in SC’s developmental agenda. The application of technologies like big data and smart contracts has the potential to increase efficiency, transparency and reduce compliance costs for halal products. Digital services and e-commerce platforms could also be the launch pad of such products into markets with sizeable Muslim communities.

Closing

19. In conclusion, I would like to take this opportunity to thank everyone for your tireless effort and initiative in helping our entrepreneurs develop their businesses. I understand these are trying times, but behind every cloud there is a silver lining. Seeing both our young and experienced VC and PE managers closing deals and fresh mandates in the past year, I am optimistic of the prospects for our enterprising players, and I am confident there are plenty of opportunities in store ahead for everyone in the VC and PE space.
20. To the award winners this evening, I wish to congratulate you in advance and do keep up the good work. Thank you once again to MVCA for inviting me and thank you to all stakeholders for your support towards the SC in our joint effort to develop further the VC and PE industry in Malaysia, and we will step forward together with all of you to ensure the growth continues in the near future and beyond.
Thank you.
End
   
SC Annual Report 2018 page 80 Part 4
2 Committed funds fell from RM7b (2017) to RM6.08b(2018)
3 SC 2018 Annual Report
4 Investment in 2017 was RM417.83m.
5 SC 2018 annual Report
6 Global LP Survey 2018, EMPEA
7 E27 Southeast Asia Startup Ecosystem Report 2018. (Link: https://e27.co/e27-southeast-asia-startup-ecosystem-report-2018-20190121/)
8 https://www.dealstreetasia.com/stories/rhl-sme-malaysia-131248/
“SBIF, COPE Private Equity invest $14.25m in Malaysia-based MDT Innovations”, DealStreetAsia https://www.dealstreetasia.com/stories/sbif-cope-mdt-innovations-130750/
10 RRJ Capital targeting about RM5bil of investments in Malaysia over the next few years. https://www.thestar.com.my/business/business-news/2019/04/13/asias-dealmaking-ong-brothers/
11 May 2018
12 By ICMR
13 The number of affluent and HNWI Muslims is expected to rise approximately 12 million by 2030 – SC’s IFWM page 18
14 once again leading the Global Islamic Economic Indicator for the fifth year in a row as reported by The State of the Islamic Economy Global Report 2018/2019

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