Members of the Management Committee, Malaysian Association of Asset Managers; Distinguished guests, ladies and gentlemen. |
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| 1. | It is a privilege for me to be here for the International Institutional Investor Series 2019. I would like to congratulate the Malaysian Association of Asset Managers for staging this event, and I also thank the organisers for inviting me to deliver this address. |
| 2. | Events like this are an important platform for regulators such as the SC to engage with investors and the industry. It is an opportunity for us to update you on our regulatory and developmental priorities, and for us to hear from you on matters requiring our attention. |
| 3. | Today's focus on the future of the fund management industry is particularly timely, and it shines a light on one of the most significant segments of the Malaysian capital market. From assets under management of only RM44 billion in 1999, the industry since has grown by more than seventeen times to reach RM786 billion by end-April this year. |
| 4. | The development of the fund management industry has also furthered SC's goal of broadening market access, as it serves as a channel for capital mobilisation and wealth creation across a wide range of investors. As such, unit trust funds historically have been an important contributor to assets under management, and account for 58% of total AUM as at end-April 2019. |
| 5. | Moreover, though not without its attendant trade-offs, the shift towards greater institutionalisation has also been a source of resilience. The presence of deep institutional liquidity, as well as sound market infrastructure and well-functioning intermediaries within a robust regulatory framework, are factors which enabled the Malaysian capital market to weather periodic bouts of volatility – particularly over the recent decade. |
| However, ladies and gentlemen; Secular trends reshaping the industry |
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| 6. | The industry currently stands at a critical juncture, with intermittent flare-ups of trade tensions casting uncertainty on global economic prospects. As a small and open economy, Malaysia is a significant link in the global supply chain. Therefore, shifts in sentiment arising from said tensions could pose a challenging backdrop for near-term market performance. |
| 7. | Notwithstanding such near-term headwinds, longer-term industry prospects remain favourable in the Asia Pacific region. In a report titled The Asian Awakening, PWC estimated Asia Pacific AUM to grow at a compound annual growth rate of 8.7% and potentially reach US$29.6 trillion by 2025. |
| 8. | This, however, is based on the assumption of limited protectionism and sanguine geopolitical activity – thus underscoring the risk that prolonged tensions may lead to the balkanisation of international trade. |
| 9. | At the same time, a number of secular trends are converging to reshape the global and domestic fund management landscape. Such trends include a pivot in investor preference towards differentiated strategies, as well as increasing interest in alternative assets and sustainable investing. |
| 10. | Emerging competition from lower-cost strategies, the impact of digital disruption, as well as heightened compliance and transparency obligations, will also pose challenges and opportunities for incumbents. The long-term viability of the fund management industry hence depends on its ability to respond to these shifts. |
| 11. | At a time when institutional investors are looking to in-house more services, the challenge is on the fund managers to prove that they remain relevant. This necessitates the provision of distinct value-added services, be it through economies of scale or niche specialisation. |
| Ladies and gentlemen, Developing sustainable investing |
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| 12. | Of particular interest to the SC is rising awareness on the need for sustainable and responsible investments, as well as environmental, social and governance concerns. |
| 13 | Driving our interest is the emphasis on value creation which goes beyond short-term financial performance. This makes SRI and ESG investing highly aligned with the principles of Islamic finance, which has long been a developmental priority for the SC. |
| 14. | Given Malaysia's role as the world's leading Islamic capital market, it was opportune for the SC to leverage this area of strength by using our existing framework and expertise as the foundation for an SRI ecosystem. Our efforts to build such an ecosystem are guided by the 5i Strategy – investors; issuers; instruments; internal culture and governance, as well as information architecture. |
| 15. | The release of the SRI Sukuk Framework in 2014 was one of the earliest milestones in our efforts to build viable green, sustainable and social asset classes. The release of this framework paved the way for the world's first green SRI sukuk, which was issued in Malaysia in July 2017. |
| 16 | Such efforts are not confined to Malaysia, and indeed have gained momentum regionally. In particular, the ASEAN Capital Markets Forum (ACMF) – a grouping of the region's securities regulators – has developed a Sustainable Capital Markets agenda to guide the transition towards an inclusive and sustainable economy. |
| 17. | These efforts resulted in the ASEAN Green Bond Standards in 2017, followed by the ASEAN Social Bond Standards and ASEAN Sustainability Bond Standards in 2018. |
| 18. | These standards have facilitated the emergence of a new asset class in ASEAN – namely ASEAN Green, Social and Sustainability Bonds. The standards were also developed in alignment with globally-recognised guidelines, including the International Capital Market Associations Green and Social Bond Principles and Sustainability Bond Guidelines. |
| 19. | By enhancing transparency, consistency and uniformity, it is hoped that the standards will promote greater interest in these asset classes through reduced due diligence cost and ability to make more informed investment decisions. |
| 20. | The response so far has been encouraging. As of early March 2019, nine issuances have been made carrying the ASEAN Green and Sustainability Bond labels. These issuances originated from Malaysia, Singapore, the Philippines and Thailand and amounted to US$934mil. Moreover, ASEAN's first sovereign green sukuk of USD2 billion which was issued by Indonesia is also aligned with the ASEAN Green Bond Standards. |
| 21. | Building on this success, on 18 March 2019, the ACMF endorsed the development of the Roadmap on ASEAN Sustainable Capital Markets. This Roadmap will outline key strategies and mechanisms to strengthen ASEAN capital markets as a driving force for sustainable development, including the roles of issuers, investors, disclosures, indices, capacity building, and enhanced inter-agency coordination. |
| 22. | A key takeaway is that policymakers' initiatives to develop a sustainable asset class needs to be met by equivalent demand. The fund management industry can therefore play a key role as a "matchmaker" between SRI-conscious investors and these issuers. |
| 23. | Though demand from within the region may still be nascent, fund managers should regard this as an opportunity to diversify their sources of AUM, as only 3.8% of Malaysia's total AUM is sourced from outside the country. |
| Ladies and gentlemen, Digitisation as a transformative force |
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| 24. | Another transformative force reshaping the industry is digitisation. Its impact is so widespread that it ranges from the emergence of the "digital native" generation of investors, to applications of technology and analytics that could re-invent the very business model of fund management. |
| 25. | To harness the benefits of digitisation while ensuring appropriate management of risks, the SC has formulated a Digital Markets Strategy. Initiatives pursued under this strategy aim to fulfil one or more of four objectives, which includes enhancing access to financing, increasing investor participation, augmenting the institutional market and developing synergistic ecosystems. |
| 26. | Our efforts to enhance access to financing have specifically focused on micro, small and medium enterprises – also known as MSMEs – as they are traditionally under-served by the financial system, despite being a vital component of the Malaysian economy. |
| 27. | To address this, we became the first market in ASEAN to introduce a regulatory framework for market-based financing avenues, such as equity crowdfunding and peer-to-peer financing. Also known as ECF and P2P financing, these avenues provide an alternative pathway for capital to be directly channelled from investors to issuers. |
| 28. | As at end-March 2019, the ECF and P2P markets have deployed almost RM350 million in financing to nearly 900 MSMEs. With three new ECF and five new P2P financing platform operators registered in May 2019, Malaysia now has a total of 21 market-based financing platform operators. |
| 29. | At the same time, we also recognised the demand for a technology-facilitated investment experience from Malaysia's burgeoning pool of digitally-savvy investors. As such, the SC is looking to facilitate the provision of digital investment services in the capital market, with particular focus on transparency, ease of use and cost-effectiveness. These may include digital investment management – which includes robo-advisory services – digital-only intermediaries, as well as micro-investments. |
| 30. | Since the roll-out of the respective frameworks, the SC has licensed two digital investment managers and one digital-only broker. Earlier this year, we have also amended our Guidelines on Recognized Markets to introduce new requirements for electronic platforms which facilitate the trading of digital assets. |
| 31. | While the recognition of digital assets has expanded the universe of investable assets, the new framework was also put in place to promote responsible innovation while ensuring an appropriate level of investor protection. On 4 June 2019, three Recognized Market Operators have been registered to establish and operate digital asset exchanges in Malaysia, and they have been given up to nine months to fully comply with the relevant requirements. |
| Ladies and gentlemen, Re-inventing business models through digitisation |
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| 32. | While these examples illustrate how digitisation can be used to offer an entirely new business model, it is striking to note that the recently-launched report by the Institute for Capital Market Research stated that 91% of the asset managers surveyed will focus their digitisation strategy on enhancing middle and back-office operations. |
| 33. | In an environment of fee compression and greater competition – both from other incumbents as well as new entrants – the focus on cost management may bring about limited efficiency and financial gains. |
| 34. | For the fund management industry to remain competitive, it is essential for firms to deploy digitisation as an offensive, rather than defensive, strategy – which includes examining how technology may transform their revenue drivers. |
| 35. | This may require investing not only in technology but also the right talent, which includes ensuring that those involved in risk management and governance – including the Board of directors – are equipped with high levels of digital literacy. |
| 37. | While I have focused my remarks on sustainable investing and digitisation, I am aware that this is but two of the issues which are faced by the fund management industry – some of which will be discussed during the subsequent panels. |
| 37. | Although I have talked in some detail about regulatory efforts to develop certain segments of the market, I wish to drive home the point that development is a collaborative effort between the industry as well as regulators and policymakers. I look forward to hearing from all of you and I wish you a productive conference ahead. |
| THANK YOU. | |
