Amid challenging global conditions and ongoing domestic policy reforms that may require radical changes in asset management in Malaysia, Nigel Gnoh, DTCC Associate Director – Business Development for SEA , spoke with Taufiq Iskandar, who served as Chief Executive Officer, VCAP Asset Managers, at DTCC’s Malaysia Industry Forum to get his perspectives on the industry landscape.
According to Iskandar, asset owners in Malaysia have deep balance sheets and huge purchasing power in comparison with their peers in the region. Fittingly, the service level agreements expected of asset managers have changed during the past 10 years, as asset owners are increasingly demanding good outcomes for their portfolios.
“In 2018, approximately 97% of new funds launched were for local investors,” Iskandar said. “Because of the high dependency on local demand, asset managers will need to review and revamp their infrastructure – in terms of resources, hardware, software and business processes to meet and anticipate the needs of their clients.
“Having said that, the conundrum is that while investor expectations are high, asset managers are increasingly being squeezed for lower fees by the marketplace,” he continued.
Iskandar commented on the outlook of Malaysia’s capital markets, “According to analyst report, the size of Malaysia’s overall capital market was at RM3.1 trillion in 2018, with domestic bonds and sukuk funds amounting to RM1.4 trillion and equity market capitalization valued at RM1.7 trillion. This works out to the overall size of Malaysia’s capital market corresponding approximately to 2.2 times the size of the country’s domestic economy.”
Fast Facts on DTCC’s Penetration in Malaysia (based on 2018 data):
91.3% of DTCC’s clients in Malaysia are using DTCC’s CTMTM for cross-border transactions.
100% of DTCC’s clients in Malaysia are leveraging DTCC’s CTMTM for domestic trades.
Top 4 markets where global firms are trading with Malaysia’s domestic brokers – based on number of trades:
1. Hong Kong
2. Canada
3. United States
4. Japan
Top 4 markets where Malaysia’s domestic investment managers are trading with foreign brokers – based on number of trades:
1. Singapore
2. Hong Kong
3. United States
4. Great Britain
While Malaysia exhibits the characteristics of a developed market, Iskandar opined that it is essentially an emerging market, easily affected by local market movements. “For Malaysia to achieve high income country status, we need greater foreign and retail participation, backed by higher turnover velocity as is the case in China’s capital markets where approximately 80% of the daily volume comes from retail representation,” he said.
Iskandar agreed with Gnoh’s suggestion that Malaysia needs to come up with more innovative investment products to attract cross-border capital flows and domestic consumption. He credited the proactive efforts from Bursa Malaysia, the country’s stock exchange, in building and instilling a stronger corporate governance culture and sustainability practices.
“Launched to address the demand for sustainable and responsible investing, Bursasustain, an initiative by Bursa Malaysia, is a comprehensive, up-to-date, one-stop online platform to provide users with easy access to the latest information and trends on corporate governance and sustainability,” he continued.
Gnoh noted that the role of regulators in Malaysia is to help achieve the full potential of its capital markets. In response, Iskandar remarked that the country needs to build policy bridges to link the various policy frameworks and blue prints created by different government agencies. This will result in a more synchronized and coordinated approach in shaping the development of its capital markets.
Iskandar indicated that, in order for firms in Malaysia to seize a larger share of investor money and hence cope with any impending crisis, they will need to rationalize existing investment models, keep costs down and identify investment funds that show potential.
“As all roads lead to Rome, there is no right or wrong approach. The strategy that a firm may take to fight fierce competition also depends on its market standing in the industry,” he added.
Iskandar observed that transiting into digital will well place the industry for any disruption – positive or negative. “Careful planning and preparation should be considered for firms adopting and adapting to digital – from reviewing existing infrastructure and business processes to skilling a digital workforce,” he advised.
Based on his positive experience working with DTCC to automate his firm’s post-trade automation process, Iskandar emphasized that one should not trivialize the operational efficiency, speed and precision that straight through processing brings to firms.
On Iskandar’s digital plans, he disclosed that thanks to automation, today, his team can provide fund performance and fund analysis to clients in real-time. He shared, “Going forward, I would not only like to connect our front, middle and back offices seamlessly but also leverage distributed ledger technology and artificial intelligence to transform our financial services, including onboarding new clients, anticipating market demands and driving growth.”
Editor’s Note: Taufiq Iskandar left VCAP Asset Managers in early October 2019 for further studies in the United Kingdom.