FUNDS under management of members of the Malaysian Association of Asset Managers (MAAM) have grown to more than RM25bil over the past six years since its formation in 1996, but the association sees significant challenges ahead.
In an interview with StarBiz, its chairman Amin Rafie Othman said one of MAAM's biggest concerns is having to play catch-up with foreign fund managers and it fears the sector's limitation to a one-country industry would result in its inability to compete when the Malaysian capital markets are fully liberalised.
We're at the moment a one country industry in that we are limited in our scope of investment to Malaysia only, said Amin, who was recently elected the new MAAM chairman.
Put in place after the 1997 Asian financial crisis, the restrictions imposed on the investing of funds overseas mean that local funds are limited in their exposure to non-ringgit products and services.
Although the laws allow for 10% of unit trust funds to be invested overseas, it is administratively difficult, Amin said, noting that such transactions needed Bank Negara's approval and they were not always forthcoming.
While there was a need for such controls then the country's reserves were on a decline and there were real fears of capital flight Amin noted that the situation has since stabilised and that there is a case for Bank Negara to allow some relaxation of the rules now.
We have to build up expertise investing in other investment products overseas if we are to compete with our international colleagues, he said, but we do not have these opportunities.
If we can do it slowly now, we will have the necessary expertise to deal with non-ringgit assets and markets. Going forward, I hope we will be able to invest a portion of our assets overseas, he added.
As at the end of 2002, MAAM, which has 19 members managing about 90% of all private funds, had total assets of RM25.3bil under its management. Amin could not provide specifics, but thinks the industry generally maintains its funds now at a 65:35 ratio of equity to fixed income.
Another challenge facing the asset management industry is standards that need to be rigorous enough to stand up to the inspection of foreign clients.
As foreign funds are never short of markets courting their vast monies, he noted Malaysia's capital market institutions and structures have to stand robust in terms of resources, compliance and investor protection.
Touching on the local stock market, Amin, who is also chief executive officer and director of Mayban Investment Management Sdn Bhd, said that in his personal view, liquidity is an issue.
How do you get it back in the market and not just from the foreigners whom we shouldn't be too reliant on, but local retailers? How do you regain confidence in the KLSE? he asked.
In some ways, he thinks it is good that retailers have been burnt in previous forays into the stock market as they might then realise the importance of doing some research on their investment candidates, or choose to put their funds into unit trusts and hopefully we can deliver for them.
Although the performance of most unit trusts over the years has been dismal, Amin thinks unit trust price falls would not be as great in the future.
The key is to see if we've learnt anything from past experiences, he said, noting that the talent pool a decade ago was also small.
I would like to think that investment management has progressed in structure, discipline and research ... which would mitigate the failures happening on a large scale in future.
Going forward, he does not see a bull market this year, but a market that will climb steadily on the back of an ending of uncertainties and the improving of economic fundamentals globally.
He thinks that the market should then trade at its economic fundamentals of 700 plus, based on real growth of about 5% next year.
With new markets emerging and the herd-like flow of funds to value markets, Amin agrees that to decrease the bear periods, Malaysia will have to work consistently at convincing foreign funds of its value.