Nestled inbetween the Gulf of Thailand and the South China Sea, Malaysia is surrounded by the fast-growing economies of Indonesia and Thailand, and within easy reach of China and India. It is a hugely diverse country with a young and thriving population. Formerly one of Asia’s ‘tiger economies’, Malaysia has developed solid institutional infrastructures and financial services companies. One of the most prominent of these is the Funds Management Division (FMD), a member of the AmBank Group, a solid funds management house offering domestic and global clients a series of both conventional and Shariah-compliant investment solutions across asset classes.
FMD began as a small department within the much larger AmMerchant Bank in 1981. Assets under its management have grown from $100m at its inception to more than $10bn as of June 2012. According to Datin Maznah, CEO of FMD, the company began by managing equity funds for domestic institutional investors, “but now we also manage Asian equities and bonds, global sukuk and capabilities for quantitative global equities. Our clients include Malaysian and foreign investors from Asia, the Middle East and Europe.”
Once an agricultural society, over the last 30 years Malaysia has developed into a sophisticated modern economy. Though it remains a big producer of palm oil, the country has developed a strong manufacturing base and has risen as a major producer of tin, rubber and electronic goods. Recently, Malaysia’s economic development strategy has aimed at broadening its economic output with greater diversification of its industrial structures and development of its financial services, fund management and technology industries. To support growth, substantial investment has been made in financial infrastructures, including capital markets, accommodating economic policies and tax incentives conducive to attracting business. In particular there has been a move to increase liberalisation of the economy, and to also achieve greater transparency and emphasis on corporate governance.
Transparent corporate governance
FMD is one of the region’s largest fund management houses, and its string of international accolades continues to not only affirm the company’s long-term commitment to delivering exceptional value to investors, but to cement its position as one of the leading fund management houses in Malaysia. Its accolades include Malaysia’s ‘Asset Management Company of the Year’ by The Asset for two consecutive years, and World Finance’s ‘Investment Management Company of the Year’ in Malaysia 2012 award. “Of course our standards have to match global best practices to be able to compete and thrive in this kind of environment,” says Datin Maznah. FMD regularly employs international investment consultants in order to maintain its premium standards. One of FMD’s top priorities is to maintain inscrutable standards of transparency and corporate governance. “The level of governance in Malaysia is on par with global standards, and this has allowed asset management companies such as ours to develop and be competitive globally because the international standards are not new to us. It leaves us in good stead to offer our investment solutions worldwide,” explains Datin Maznah.
This economic growth strategy has worked, and in 2011 Malaysia expanded over five percent. In the country’s growing investment banking industry, fund management houses like FMD have been taking advantage of the country’s trading links with the rest of Asia and its low business costs to attract a host of foreign and domestic clients. Malaysia is positively positioned among global economies in terms of optimisation of skill and cost of doing business. Its workforce is young, better educated and more efficient than some of its neighbours, according to Datin Maznah, which makes the country extremely well-equipped to compete with financial centres like Hong Kong and Singapore – and their rocketing business costs.
FMD has used Malaysia’s unique position to its advantage. FMD’s philosophy revolves around prioritising clients’ needs in every situation and the funds management house strives to assert itself as an intelligent investment solutions provider at every turn. This philosophy is reflected in all aspects of business, from product lines to risk management strategy. FMD’s typical institutional clients include pension funds; public sector funds; and corporate customers. Pension and public sector funds are usually longer-term in nature and require regular income. Corporate clients are shorter-term but are very risk-averse, which calls for competitive income products.
With these clients in mind, FMD develops risk management strategies that are less
volatile, but does not sacrifice returns and regular income. Clients with shorter-term investment requirements who might also want to access their investments at short notice will benefit particularly from FMD’s Treasury Solutions Facility (TS). It is a one-stop solutions centre for corporate clients to invest excess cash holdings, enabling them to switch between money market products and bond funds tailored to suit individual requirements. It is ideal for clients who cannot afford to lose capital or withstand short-term volatility because it is designed to emphasise capital preservation, while maximising income. TS’s money market products have different layers of liquidity, a range of credit profiles and many levels of maturity and tenure for clients to choose from. Every product within TS can be rearranged or combined like building blocks to enable the smallest business to manage their cash akin to bigger corporations.
Shariah-compliant investment solutions
As well as experiencing vast success in the private and institutional client sectors, FMD also markets Shariah-compliant funds to global investors through AmIslamic Funds Management (AIFM). AIFM manages the Shariah-compliant investments of FMD. Today Malaysia’s population is 61.4 percent Muslim and the demand for Shariah-compliant investment solutions is on the rise. AIFM manages global equities as well as sukuk. This is in line with the aspiration of the Malaysia International Islamic Financial Centre (MIFC) to promote Malaysia as a major hub for international Islamic finance.
AIFM has been hugely successful both in the domestic market and with foreign investors for its vast expertise in the market. “Our Islamic assets under management have swelled to about $1.4bn as of June 2012; it has grown very healthily in the last year,” says Datin Maznah. “Our global Islamic assets under management have actually grown much faster than our domestic assets. There has been a 68 percent growth in international Islamic assets compared to 32 percent for domestic assets in the past year.” Because FMD is the market leader for managing fixed income in terms of assets under management in Malaysia, it is looking to expand its foreign client base, investing in sukuk and Shariah-compliant equities. According to Datin Maznah, AIFM “has one of the longest and most credible track records in the management of global sukuk, especially in institutional space.”
In managing sukuk there is a challenge with supply and liquidity of financial instruments, and despite increasing demand, the actual growth in this asset class will be limited. But equities is a very liquid market and can therefore respond quickly to a rise in demand for Islamic equities. “This is a scalable asset class that does have growth potential and we have been focusing our capabilities not just in global sukuk, but in global Shariah-compliant equities, and we have found surprising and encouraging results,” says Datin Maznah. “The management of Shariah equities has the capacity to deliver very competitive risk return outcomes as compared to conventional assets, and we are optimistic of offering competitive investment solutions to global investors, which happen to be Shariah-compliant.” That is, FMD’s approach to these global equities is a value-driven quantitative approach, in comparison to their traditional active approach in Asian markets.
FMD is using its vantage position, experience and market foresight to carry itself into the future. According to Datin Maznah, it has “won the confidence of our investors, institutional and retail, domestic and global, which we take very seriously. Leveraging on this, we want to take our model worldwide, managing global assets for global investors, while focusing very much on our clients’ needs and on volatility and risk, with an emphasis on innovation in delivering what the clients want.”