Keynote Address at the Federation of Investment Managers Malaysia (FIMM) Virtual Annual Convention “The Next Normal”
25 October 2021  |   By Datuk Syed Zaid Albar, Chairman, Securities Commission Malaysia
Keynote Address
by Datuk Syed Zaid Albar
Chairman of Securities Commission Malaysia
at the Federation of Investment Managers Malaysia (FIMM)
Virtual Annual Convention
“The Next Normal”
25 October 2021

En. Mohd Ridzal bin Mohd Sheriff, Chairman of FIMM,
FIMM Board members and senior management,
Ladies and gentlemen,
Assalamualaikum and a very good morning to all.

INTRODUCTION
1. First, and foremost, I would like to thank FIMM for the gracious invitation to deliver this year’s keynote address.
2. The past 18 months has without doubt been one of the most severe tests for global capital markets, with many countries largely unprepared for a global health crisis. Despite the challenges, our unit trust and fund management industry continued to play a vital role in providing savings intermediation and liquidity for the Malaysian capital market.
3. In particular, total assets under management (AUM) continued to show strong growth momentum, increasing by 10% in 2020. As of August this year, it had risen by 7% to around RM 970 billion . This is a testament to the resilience and agility of market players, as well as their ability to serve every day investors.
4. In recent years, Malaysians have demanded more diversified investment offerings as investors re-balance their short-term objectives and long-term investment goals. Encouragingly, there has been 133 new fund launches of various types since 2019 as industry responded to these varied needs.
5. However, it is essential that market intermediaries continue to grow and remain competitive in the face of a rapidly evolving market landscape.
6. The SC recently rolled out its 5-year Capital Market Masterplan 3. The CMP3 intends to ensure that Malaysia’s capital market stays ahead of the curve – to be relevant, efficient and diversified, so that it continues to benefit each and every one of us.
7. To be precise within the context of the fund management industry, I would like to focus on three “Next Normal” themes in the CMP3 - acceleration of the sustainable and responsible investment (SRI), broadening of retirement and onshore investment options, as well as greater market digitisation.

Ladies and gentlemen,

MAIN THEMES UNDER CMP3 RELEVANT TO FM INDUSTRY

Rise of Sustainable and Responsible Investments (SRI)

8. Today, there is rising awareness and renewed focus on sustainability and climate change, given its severe impact to global economies. The pandemic, if anything, has exposed the fragility of our modern world. Greater commitments to sustainability and the climate agenda have further spurred demand for sustainable investments.
9. Global sustainable fund assets grew 12 % quarter-on-quarter to USD 2.3 trillion in the second quarter of 20211 . In addition, ESG funds globally have tripled over the past 10 years to almost 4,000 funds2. Similar trends were observed in Malaysia. Since 2020, the number of qualified SRI funds3 introduced domestically has increased more than three-fold.
10. SRI allows investors to make ESG aligned investments while generating positive financial returns. Furthermore, in recent episodes of heightened volatility, markets appeared to have rewarded strong ESG performers. Global sustainable funds also demonstrated better resilience with smaller losses compared to conventional funds4. This has increased the attractiveness of SRI funds to investors.
11. Sustainability is not new to the Malaysian capital market. The SC has long recognised the importance of SRI given its commonalities with Islamic investing. Over the last decade, we have introduced various SRI initiatives including the SRI Roadmap in 2019 to strengthen Malaysia’s position as a regional SRI centre.
12. The CMP3 identifies SRI as a key development thrust given its importance in shaping a stakeholder economy that facilitates long-term value creation beyond just short-term profits. The SC will also continue facilitating capital raising by sustainable and responsible businesses that benefit a wider set of stakeholders.
13. Accelerating the development of SRI in Malaysia requires the collective effort of all stakeholders. We seek the industry’s cooperation in leveraging increased awareness of sustainability by providing more investment opportunities for investors. Moving forward, this calls for our market players to enhance their SRI intermediation capacity and capabilities to innovate and meet market demand.

Ladies and gentlemen,

Expanding retirement savings options

14. An emerging area of concern is our future retirement savings. Prior to the pandemic, retirement security was already a challenge for Malaysians. The pandemic has made matters worse. For example, EPF recently revealed that the median savings of its B40 and M40 members fell by 60 % and 17 % respectively. In the first 8 months of this year alone, withdrawals have exceeded contributions by almost 85%. Now, about half of all EPF members under 55 have less than RM10,000 in their accounts.
15. Given that Malaysia is rapidly approaching the status of an ageing nation5, this issue will only grow more pressing over time. Therefore, in line with national policy efforts, the CMP3 seeks to facilitate innovative solutions, driven by the private sector to provide investors with more retirement saving options. In tandem, we also need to increase our investor education efforts to emphasise the importance of retirement planning and address retirement planning inertia by the younger generation.
16. To enhance access and drive a regular savings culture, the SC will work with the industry on a new framework for portfolio based private retirement schemes (PRS). This will facilitate convenient interfaces via smartphones and other devices. It also promises cost efficiencies and seamless on-boarding with algorithm driven solutions that meet retirement goals.
17. As a result, savings can be channelled more easily in smaller and regular amounts to address financial constraints of younger investors.
18. Other solutions considered within the PRS framework is to allow for target date funds. Such funds provide a more optimal de-risking process for investors as they age. The portfolio will rebalance automatically according to the investor’s age, target retirement date as well as market conditions during the tenure of the fund.
Growing investment options onshore
19. Another key priority is providing investors with choices in terms of access to foreign funds and alternative strategies, while ensuring a level playing field for domestic and foreign fund managers. This necessitates the introduction of a dedicated framework to recognise foreign exempt schemes.
20. We are adopting a phased liberalisation approach to allow locally incorporated fund managers to offer foreign funds to institutional investors and high-net-worth entities. Permitting foreign funds would allow domestic intermediaries to better serve sophisticated investors and bridge the gaps in product offerings. This move is expected to help the Malaysian asset management industry compete.
21. On the domestic front, we are revising the SC’s Guidelines on Unit Trust Funds. The revised guidelines will bridge the gap between domestic and international fund requirements in other markets. This will make domestic funds more appealing to both domestic and foreign investors, and help the unit trust industry grow.
22. Revisions include broadening the definitions of permissible investments and eligible markets for domestic funds to invest in, liberalising of investment strategies and asset classes, expanding the scope of securities lending, and allowing repurchase transactions to include foreign markets.
23. We are optimistic that these revisions to the Guidelines would not only allow domestic funds to establish a global presence, but also portray Malaysia as an attractive investment hub.

Ladies and gentlemen,

Greater digital adoption

24. Another hot topic of conversation today is digital adoption and greater use of online tools; intensifying the push towards end-to-end digital integration. We do not have to look far for examples. Today, I am speaking to you through a virtual platform, which can accommodate significantly more people than a physical meeting venue.
25. Also noticeable during this pandemic is how consumer behaviour has changed, with many embracing – or forced to embrace – this trend. This has significant implications for your interactions with customers moving forward.
26. As such, I urge industry members to leverage and harness the benefits of the Fund Management Industry Digitisation Group or FMDG, which aims to accelerate the digitisation of the fund management industry.
27. Related FMDG initiatives to explore include the feasibility of having a centralised infrastructure to increase efficiencies and enable greater growth of cross-border fund distribution. It would be most encouraging to see more industry-led recommendations and initiatives arising from this platform, as we collectively implement the CMP3’s plans moving forward.

CLOSING REMARKS

Ladies and gentlemen,

28. In closing, I would like to highlight that the CMP3 is a shared journey to be undertaken. We can all plan for the “Next Normal”. However, the best-laid plans would remain nothing more than words and aspirations on paper without concrete action and collaboration from all stakeholders.
29. On that note, let me once again express my appreciation to FIMM and everyone present here today. I wish you an interesting and fruitful conference ahead.
 
Thank you.

1 Morningstar, Global Sustainable Fund Flows: Q2 2021 in Review, July 2021.
2 An increase from 1,304 funds in 2010 to 3,987 funds in 2020 - United Nations Conference on Trade and Development (UNCTAD) estimates, based on Morningstar and TrackInsight data, 2020.
3 As at 3 September 2021, the number of funds qualified as SRI funds increased from five in 2020, to 18, comprising 10 unit trust funds and 8 wholesale funds
4 Morningstar, “Sustainable Funds Weather the First Quarter Better Than Conventional Funds”, https://www.morningstar.com/articles/976361/sustainable-funds-weather-the-first-quarter-better-than-conventional-funds (Apr 2020)
5 Expected to reach by 2030
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