Opening of the New Premises of the Federation of Malaysian Unit Trust Managers
15 February 2000 |   By : Encik Ali Abdul Kadir, Chairman, Securities Commission

Encik Ali Abdul Kadir,
Chairman, Securities Commission

at the
Opening of the New Premises of the Federation of Malaysian Unit Trust Managers

15 February 2000

Yang Bahagia Encik Abdul Azim Mohd. Zabidi, President of the Federation of Malaysian Unit Trust Managers, Council Members of the Federation, Members of the Federation, Dato'- Dato', distinguished guests, ladies and gentlemen.

A very good morning to all of you. Firstly, my thanks to the Federation of Malaysian Unit Trust Managers for inviting me to say a few words on this occasion. Whichever way it is that one interprets the actual entrance of the new millennium, be it the beginning of January 2000 or January 2001, the fact remains that the new millennium will inevitably bring about with it many changes. And as if to jump on the bandwagon of "change" as we see it, the Federation too, has moved into its new premises! My many congratulations to the Federation!

Coupled with the changes that we anticipate in new millennium will be the challenges in which we, the regulators, together with the industry, will face towards developing the fund management industry to the manner that we best perceive to be to the advantage of the Malaysian capital market as a whole. Our success in meeting these challenges will to a large extent depend on how we manage these changes.

The development of the unit trust industry particularly, within the larger fund management sector of the capital market, plays a crucial role in the holistic picture of developing the Malaysian capital market because with it, comes greater institutionalisation of the domestic capital market, which in turn will contribute towards the efficiency, stability, breadth and depth of the Malaysian securities market. A strong domestic fund management industry is imperative for the nation, as it will:

  1. boost the capital market by injecting liquidity into the domestic market;
  2. cushion the impact of sudden massive outflow of foreign funds; and
  3. ensure more efficient mobilisation of domestic savings to fund corporate growth and fuel economic expansion.

It is for this reason, that investment management is a major focus of the Capital Markets Masterplan (CMP), which as I'm sure you are all aware, the SC is currently formulating. Through its recommendations, the CMP will determine the strategic positioning for Malaysia's capital market and provide a road map for its future development. The SC recognises that for a good road map, the views of the users of the map, or rather the industry participants, are highly crucial to ensure that the directions in the map and the eventual destinations are clear, achievable and meet the needs of all parties. Therefore for the CMP to work successfully, the support of the stakeholders of the capital market is essential. For this very reason, the process of developing the CMP will not be conducted in isolation. Let me assure you that the SC will, once the recommendations have been formulated, be consulting the industry and seeking feedback on these very significant issues, so that the CMP will be truly reflective of the needs and aspirations of the market.

Before looking forward though, perhaps we should examine the performance of the industry over the years. (As they saying goes, "Those who ignore history are condemned to repeat it"!) Statistical figures have reflected that the performance of the unit trust industry thus far has been fairly encouraging. Comparative figures suggest that the total net asset value of the unit trust industry in November 1999 had increased by 9.16% to RM42.3 billion, from the total net asset value of RM38.7 billion as at 31 December 1998. Total units in circulation have likewise increased by 12.2% to 52 billion comparatively to 46.5 billion in 1998.

So, to what, or rather, to whom do we attribute the expansion of the industry?

Credit on the state of the industry must to a certain extent, be extended to the participants themselves for the various efforts taken to develop the fund management industry.

On the part of the regulators, various measures have been implemented to promote fund management, amongst which were:

  • the capital market liberalisation package announced by the Minister of Finance in 1995 which include allowing stockbroking companies to operate unit trust schemes, allowing major companies to manage their own provident funds, the introduction of the Employee Provident Fund Members Investment Scheme and the raising of the Employee Provident Fund's investment in the Kuala Lumpur Stock Exchange to 15%, etc.;
  • tax incentives being granted to encourage investments, such as a tax rate of 10% for fund managers on income received from services rendered to non-residents, as well as unit trusts being exempted from all interest income; and
  • the organisation of roadshows over the past years to Hong Kong, Australia and London, in order to attract foreign fund managers to set up operations in Malaysia.

Underlying the efforts undertaken to promote the industry were measures taken to streamline the regulatory framework as well. Various Guidelines have been issued to govern the development of the fund management industry, amongst which were the Guidelines on the Establishment of Foreign Fund Management Companies in August 1995 and the release of the revised Guidelines on Unit Trust Funds in May 1997. Amendments to the laws have also been made to facilitate the development process, namely amendments to the Futures Industry Act 1993, which came into force on 1 November 1998, on the licensing of intermediaries.

There is little doubt however, that efforts to promote the industry must come from all quarters. The success or failure of any endeavour depends to a significant extent, on the degree of commitment shown by the parties towards that cause and the extent to which such parties are willing to work together to achieve the ultimate objective. On this note, I would like to take this opportunity to commend the Federation on efforts made towards developing the fund management industry thus far. Much is to be said on the progression of the Federation as a trade association since its formation back in 1993, to represent the interests of the unit trust management companies. From being entrusted with the pivotal role of implementing the Guidelines on Marketing and Distribution of Unit Trusts, in particular the regulation of the marketing framework for unit trusts, to being a training and education centre in order to enhance the proficiency of its members within the industry, the Federation has since surged ahead to further develop the unit trust industry. As I'm sure all of you are aware, the beginning of the millennium itself witnessed the achievement of a significant milestone in the unit trust industry. The introduction of the Guidelines for Registration of Institutional Agents for the Marketing and Distribution of Unit Trusts (in short, the IUTA Guidelines) on 1 February 2000 is expected to present a paradigm shift in the manner of distribution and marketing of unit trusts to retail investors, and more especially institutional investors. A wide-based distribution and marketing network as envisaged by the IUTA Guidelines lays the foundation for greater participation within the unit trust industry, of institutions, and with it the inclusion of more sophisticated players. This wide-spanned network will naturally need to be accompanied by disciplinary measures for contravention of the Guidelines. A huge responsibility now rests upon the shoulders of the Federation, particularly in its task of meting out disciplinary measures (if any) against members in an independent, objective and unbiased manner, and instituting actions without fear or favour. We foresee henceforth that the domestic capital market will inevitably thrive, thus leading towards more liquidity in the market and greater attractiveness to regional and international investors.

But let us not pat ourselves on the back and lie complacent, for there is still much to be done! In the wake of economic recovery (and I'm sure all of you are cognisant of the 1000-point breakthrough in the stock market recently!!), this is an opportune time for us to take the necessary measures to not only fortify the framework of the industry, but also to evolve in order to provide a more competitive, yet mature industry with high standards of integrity amongst its players.

Although the vision towards further strengthening and developing the industry should be a shared vision amongst both the regulators and industry participants, let us also not detract from the need for the growth of the industry, in commercial terms. Statistics reflect that as at 30 November 1999, the unit trust industry accounted for a mere 8.47% of net asset value to the Kuala Lumpur Stock Exchange market capitalisation. Further, from the total net asset value of funds amounting to approximately RM42.3 billion, only an approximate total of RM9.97 billion is attributed to private funds, whilst the remaining balance comprise government or state-sponsored funds. In view of the large margin of the market still available for unit trusts to contribute towards the economic growth of the country, there is much room for the enhancement of the product to investors, retail and institutional alike. Although the SC acknowledges that the continued expansion of the industry would naturally materialise on a gradual basis with adequate safeguards in place to ensure investor protection, nevertheless efforts must be realised by industry players on an industry-wide scale to efficiently mobilise the savings of investors in order to buttress the speed of economic growth in our country. The ultimate objective for industry players should therefore be to further penetrate the product into the market to make unit trusts an investment product with significant appeal to investors. A means in which this may be achieved is educational training, which can seek to create investor awareness of the product and investments therein. On the SC's part, various roadshows such as the "Personal Investment Planning Seminar" have been conducted in the Klang Valley, Penang and Johor, to achieve this aim. This is a key area in which the Federation can come in to complement SC's efforts in creating greater understanding of the product and how it can be used to meet investors' personal investment objectives.

So, what, you may ask, is the way forward for the industry? What are the underlying trends that will shape the industry and the regulatory environment surrounding it? From SC's perspective, the trends, to name a few, are:

  • globalisation and liberalisation, which will dictate the manner in which business is to be conducted and enhance competitiveness amongst industry players;
  • technological developments, which will ease the access of information by investors;
  • the growing sophistication of investors that will necessitate the introduction of new and innovative products; and
  • the increase in the ageing population will lead to an increase in retirement savings.

To cater to the dynamic manner in which the industry is progressing, we need to be mindful that a pragmatic approach needs to be embarked upon to encourage the growth of a healthy fund management industry. Apart from the regulators on the one hand, ensuring investor protection at every step of the progression, the industry on the other, needs to strive to maintain investor confidence in the market. It is high time that both the regulators and the industry acknowledge the need to adopt a functional approach to regulation, yet at the same time focus on improving the governance structure of fund management.

In view of what lies ahead, the Federation thus faces a huge task in playing a leading role to organise efforts to facilitate the rapid and orderly development of the unit trust industry. SC looks forward to hearing of the Federation's plans and contributions to the development of the industry, and hopes that both the SC and the Federation are able to work well together in the development of the fund management industry, for the betterment of the industry as a whole.

Therefore, in conjunction with the opening of this premises and the multitude of developments looming ahead, I issue you this challenge - let us seize the opportunities now and take the industry to greater heights!!

Thank you.
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