Special Address by Islamic Fund Management: Emerging Catalysts towards a Wealth of Opportunities Mr Kunio Watanabe |
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| 1. | It is a great pleasure for me to be here this morning. The first decade of an organisation is a defining milestone, and I would like to congratulate Nomura Islamic Asset Management on their 10th anniversary. |
| 2. | It was significant for Malaysia to be selected as Nomura’s global hub for Islamic asset management, given Nomura Asset Management’s expansive global network with a presence in Asia, North America, Europe and the Middle East. The SC acknowledges the efforts made by Nomura Asset Management to profile Malaysia and Islamic fund management internationally, and we encourage the industry to intensify their efforts to further develop this market segment. |
| 3. | On the global scale and despite heightened competition, Malaysia continues to be a leader in the Islamic capital market, with sukuk and Islamic fund markets which are among the largest in the world. As at end-2018, the Islamic capital market was valued at RM1.88 trillion, representing approximately 61% of Malaysia’s overall capital market. It is supported by a vibrant industry comprising local and foreign fund management companies, stockbrokers and advisors with comprehensive Islamic capital market capabilities. Industry-led innovation in tandem with SC’s developmental initiatives also resulted in a diverse range of Islamic investment products including unit trust funds, wholesale funds, private retirement schemes, ETFs and REITs. |
| Ladies and gentlemen, Driving synergies between ICM and sustainable investing |
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| 4. | Such an achievement was decades in the making, and rooted in Malaysia’s holistic approach towards developing an Islamic capital market ecosystem. Driven by the SC, the approach drew on the insights of shariah experts, industry professionals, as well as stakeholders such as institutional investors. The outcome was a facilitative regulatory apparatus within an institutionalised shariah governance framework, which is supported by a shariah-cognisant tax, legal and accounting framework that provides clarity and commercial certainty. These efforts consolidated interest from investors, issuers and intermediaries in what was then a nascent industry, and enabled Malaysia to leverage its competitive advantage in this area. |
| 5. | The SC, in particular, recognises the Islamic fund management industry as an important channel for mobilising capital into shariah-based investments, and the industry landscape has changed significantly over the past decade. Consider, for example, that in 2008 there were only five Islamic fund management companies and 30 fund management companies with Islamic windows. Today, the numbers have grown to 22 Islamic fund management companies with a further 31 fund management companies operating through Islamic windows, with assets under management of RM158.8 billion. |
| 6. | This expansion was supported by SC’s initiatives to grow Malaysia’s Islamic fund management industry by providing a conducive regulatory and commercial environment. These include the introduction of the Guidelines on Islamic Fund Management in December 2007, tax exemption on fees received for managing Islamic funds, and liberalisation of foreign ownership in Islamic fund management companies without any restrictions on overseas investments. All these initiatives provided clarity and a conducive business environment for the industry to develop and grow, especially on the domestic front. |
| 7. | At the same time, we strove to internationalise the Islamic fund management industry by establishing linkages with other jurisdictions to facilitate the industry’s cross-border expansion. For example, the SC has signed mutual recognition agreements with the regulatory authorities of Dubai and Hong Kong to enable cross-border Islamic fund transactions. We have also instituted arrangements with the regulatory authorities of Ireland and Luxembourg to facilitate the offering of Malaysia’s Islamic Undertakings for Collective Investment in Transferable Securities (UCITS) products. As part of our regionalisation strategy, the SC as part of the ASEAN Capital Markets Forum has also launched the ASEAN Collective Investment Scheme framework with participation from Malaysia, Singapore and Thailand in 2014 to facilitate cross-border offering of CIS, including Islamic CIS. |
| Ladies and gentlemen, Driving synergies between ICM and sustainable investing |
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| 8. | Having grown so prodigiously, what is the next step for this industry? In January 2017, the SC has launched the Islamic Fund and Wealth Management Blueprint with a vision to establish Malaysia as a leading international centre for Islamic fund and wealth management. It charts the medium and long-term strategic direction for the industry while mapping out strategies and recommendations to strengthen the country’s competitive edge. The Blueprint outlines three mutually reinforcing strategic thrusts, namely strengthening Malaysia’s positioning as a global hub for Islamic funds, establishing Malaysia as a regional centre for shariah-compliant sustainable and responsible investments, and developing Malaysia as an international provider of Islamic wealth management services. |
| 9. | It is pertinent to highlight the concurrent focus on and the commonalities between the principles of Islamic Finance and SRI including the emphasis on ethical business practices and positive social outcomes. Internationally, SRI is gaining momentum, particularly among institutional funds and investors, as illustrated in the 25% growth in global sustainable investment in AUM from US$18.28 trillion in 2014 to US$22.89 in 2016.1 With Islamic funds recognised as part of the SRI universe, Malaysia is currently the largest market for SRI funds in Asia ex-Japan, with a 30% share. |
| 10. | Given this structural pivot in investor preference, the SC has identified SRI and as well as the closely-related Islamic fund and wealth management segment as one of growth drivers for the next phase of Malaysia’s capital market development. In 2017, the SC has issued the Guidelines on Sustainable and Responsible Investment Funds to facilitate and encourage further growth of SRI funds in Malaysia. Moreover, the growing pool of SRI assets represents potential scope for fund administration and investment support services firms to serve both the Islamic and SRI funds segments. |
| Adapting to digitisation and demographic shifts |
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| 11. | As we look ahead, digitisation and demographic changes will continue to reshape markets, and it is critical for market participants to adapt to opportunities and risks arising therefrom. A key driver of future industry growth is the shift in investment preferences an emergent generation of investors. The Millennials, in particular, are accounting for a growing share of the investor base, with studies identifying their greater awareness on SRI and their propensity to align investment decisions with social causes and personal values. Millennials also see businesses as agents for socioeconomic change, and the ability of our intermediaries to respond to this trend and cultivate this generation of socially-aware digital natives will enhance the value proposition and competitive advantage for Malaysia’s fund management industry. |
| 12. | When properly harnessed, technology can also strengthen business intelligence through data analytics, enhance investor experience and drive efficiency, for example through the use of technology to manage shariah and SRI portfolios by integrating the relevant processes into the fund management system. Alternative financing channels and new business models such as equity crowdfunding, peer-to-peer financing and digital investment management also offer new opportunities for both entrants and incumbents, thus providing for more inclusive access to the capital market. |
| Ladies and gentlemen, Conclusion |
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| 13. | While the asset management industry remains one of the fastest-growing segments in the Malaysian capital market, it is important to assess the industry’s readiness in the face of structural shifts in the market landscape. I am pleased to report that Institute for Capital Market Research Malaysia (ICMR), an independent research institute established in November 2017, has collaborated with the Nomura Institute of Capital Markets Research to prepare a joint report on structural frontiers in the asset management industry, and the efforts required to surmount them. |
| 14. | In line with this initiative, ICMR and NICMR has also entered into a Memorandum of Understanding to collaborate in areas pertaining to capital market development. These include providing a platform for the exchange of expertise and technical knowledge, as well as capacity-building through engagements among regulators, the industry and academia. |
| 15. | Insights garnered from initiatives such as today’s forum and this research report will help to illuminate our path as we seek to accelerate the development of Malaysia’s Islamic capital market, including its fund and wealth management industry. The growth achieved so far would not have been possible without the contribution of various stakeholders, including institutional investors as well as shariah experts and industry professionals. To take the Malaysian Islamic capital market to the next level, we must harness the same ethos of collaboration and spirit of innovation, and the SC looks forward to continue working with all stakeholders to drive this development agenda. |
| 16. | Once again, thank you for inviting me to be here and I would like to wish everyone a fruitful and engaging session. |
| Thank you. | |
