POLITICAL MATURITY

Malaysia 2019 | FINANCE | VIP INTERVIEW

TBY talks to Ismitz Matthew De Alwis, Executive Director/CEO of Kenanga Investors Berhad, on FinTech, the National Industry 4.0 Policy Framework, and new demographics.

What are the main accomplishments and milestones of Kenanga Investors over the past year?

The last few years have been exciting for us, despite a rather challenging year due to events felt across the world. As a firm, we have grown in line with our objectives over the past two years. We have tried to ensure that we can serve multiple segments of the market, and have therefore built a mass retail, institutional and a high-net-worth individuals arm. We are seeing particular growth opportunity among high-net-worth and ultra-high-net-worth individuals. At the product level, we have moved beyond mere asset management and are now licensed to distribute multiple funds and work with over 20 partners. In early 2018, we were granted a financial planning license by the regulators and are now able to offer a full financial planning platform. We are one of the few players in Malaysia with multi-segment and multi-distributional activities. Furthermore, we are proud of our efforts to promote sustainable investment; we officially became a signatory of the Malaysian Institutional Code of Investors in 2017. We are also the first asset manager in Malaysia to be rated by a credit agency, and have worked hard to promote sustainability and transparency in our investment and risk management. Being positioned as a regional expert, we need to ensure that we have local knowledge combined with global practices, and therefore it is vital for us to focus on sustainability and transparency especially with the growing interest in ASEAN and Islamic finance. We have also worked to expand our strategic alliances through which we can leverage the expertise of other firms and vice versa. These strategic alliances are important for us; we are able to offer domestic players new foreign products and foreign partners access to Malaysian products. Together with our partners in the US and Australia, we launched Malaysia's first AI-based hedge fund, and an Australian income fund in the market, respectively. We are also currently working with the biggest ETF issuer in Taiwan, thanks to a similar retail market that we are serving. Together, we hope to launch our first leveraged and inverse (L&I) ETF in Malaysia later this year. Moving forward we will continue to build cross-border partnerships, although we do not necessarily intend to expand into these geographies. Our goal is cross-border enrichment and shared expertise.

How has FinTech impacted the asset management industry in Malaysia, and how is Kenanga Investors addressing it?

There are two elements to look at in this area: the financial part and the tech part. In terms of technology, there have been some strong developments, and asset managers must embrace and deploy new technologies. We see utilization of technology both on the frontline and in the back office most notably for CRMs to crunch different kinds of data but it will take a few years for Malaysia to get to the same point as the most advanced nations. One way in which new technologies help us is by creating a more interactive experience for clients. In the back office, we are focused on making our processes more efficient through the application of technology. It is also helpful in terms of compliance and regulatory requirements, risk management, and facilitating better investment decisions. AI is an area that has the potential to really transform this area of operations, and we will be able to develop analyses and asset assessments much more efficiently. Asset managers have to start looking at AI and big data analytics closely. Regarding the financial side of FinTech, Malaysian regulators have been quite progressive in their efforts. Two years ago, the regulators launched a digital investment management license, called DIM (Digital Investment Management License). This allowed clients to get their investments information online. We are looking at this too, and it will be an important method for targeting the Generation Y and Millennial generations. We foresee a hybrid model becoming especially popular, with robo-advising and human advising working hand-in-hand. At the firm level, we are undergoing this transformation, and are in the midst of a two-year IT transformation plan that extends across our entire business.

Worldwide there is a tendency towards passively managed index funds and ETFs. How do you see the relevance of active portfolio management going forward?

Active portfolio management will remain a central component of asset management. As a fund house, we are moving to multi-boutique investment styles. We are working hard to develop our multi-asset presence. We are both active and passive managers, and I think that active management will remain important in developing markets like Malaysia. In more developed economies, passive management will continue to take on a larger presence. ETFs will continue to expand in terms of their size and relevance in the market. In Asia, especially, active management will remain vital, partly because there are so few alternatives in developing markets available. The ETF market needs to mature to a certain level, and this will occur in step with the socio-economic development of the country. In the US, for example, ETFs now account for the bulk of stock market transactions. However, people will continue to depend on active management in the Malaysian market, especially younger individuals.

What are your expectations for the impact of the National Industry 4.0 Policy Framework on the performance of Malaysia's manufacturing industries?

Malaysia has been an agricultural economy for much of its history, focusing on things like rubber and palm oil. We have started the transition to an industrialized economy, which is where we started to invite various kinds of manufacturing interests into the country. We are located in an industrial free-trade zone, which has allowed us to welcome many semiconductor companies into the country. Generally, what makes Malaysia attractive is that we are an English-speaking nation and have a strong labor force. However, some of our strong suits have been overlooked. Though we have lost some of our competitiveness to neighboring countries like Thailand, we are starting to really focus on Industry 4.0, and are seeing exciting developments. We cannot consider this in isolation, though, and must understand how we can maximize the entire value chain. For example, if we plan to develop a strong car manufacturing base, we need to make sure we are developing the talent we need for this manufacturing base. There also needs to be a strong roadmap in place. Foreign investors are now looking at Malaysia, because we can be a cheaper location for manufacturing in Southeast Asia. Singapore is becoming hugely expensive, and we are an excellent alternative for some of these investors. Malaysia can be an excellent alternative for people keen to set up a manufacturing branch or other operations. The other aspect of Malaysia's attractiveness is that we are open to anyone who wants to do business fairly within the country. The new government is trying to push the idea that we are not China-centric or Japanese-centric, but rather open to everyone.

Are you seeing growing appetite for investment in Malaysia among international investors?

Not yet, but I believe that more and more investors will return to Malaysia. We are trading at fair valuations. Malaysia is moving toward political maturity which is a positive sign. This development is similar to the developments Thailand experienced 10 years ago. Indirectly, businesses now understand the lay of the land politically, allowing for much greater stability and continuity in this area. We are seeing great progress. There are now more checks and balances, and the people in power know that someone is watching. Over time, we will see changes that lead to more transparency and less corruption. This is part of the value chain that we are developing within Malaysia, and it promises many positive spillover effects in terms of foreign direct investments (FDI) and development. Properties and stocks are priced attractively, making Malaysia an excellent country in which to reap the opportunities. Highly attuned investors from Europe have a keen interest in Malaysia right now, and investors should recognize that this is an excellent time for a closer look. Kenanga Investors is the one-stop gateway to Malaysia, and we offer a variety of services to investors looking at the country.

What is your outlook for Kenanga in 2019, and what are your strategic objectives to take the company further?

We have just finished the first phase of our three-year plan and will now move into the next phase, which covers 2019-2021. Over the past three years, we have worked to build our distribution network, expand our client segments and improve on our back office processes. For the next three years, we plan to further develop what we have achieved thus far. We will increase our product range, expand our wealth management and financial planning services and join forces with more partners. At the same time, we are working hard to embrace technology, maximize online accessibility and capture Gen Y and Gen Z demographics. We need to prepare for the generational changes set to impact the marketplace.