Thursday, February 28, 2008

Unit Trust in Malaysia

By the Edge

The Securities Commission (SC) is streamlining regulations governing the unit trust industry to enable benchmarking against international standards and enhancement of fund management while spurring the growth of the industry.

Its chairman Datuk Zarinah Anwar said the revised guidelines, to be issued on March 3, would make it easier for fund managers to develop the necessary capabilities to improve their global fund management skills to meet investor expectations for better returns from its investments.

Within the investment management industry, Zarinah said unit trust funds were the largest contributor to assets under management, with the number of funds in operation growing 26% in 2007 to 495, of which some 128 were Islamic funds.

The Malaysian unit trust funds, which hold a 45% share of the local equity market, the largest share among Asean bourses, saw its net asset value (NAV) grow 39% to RM169.4 billion last year, while total investments abroad grew 79% to RM15.16 billion, representing 10% of assets under management.

Speaking at The Edge-Lipper Malaysia Fund Awards 2008 here yesterday, Zarinah said the SC would allow the dissemination to investors of an abbreviated version of an interim report on a fund’s performance.

“We want to make it easier for investors to track their investments. However, the full version of the interim report must still be prepared, made available upon request and posted on the unit trust manager’s websites.”

The revised guidelines include the removal of prescriptive investment restrictions, such as a limit on exposure to options and futures, which would be replaced with prudential limit for investments in derivatives.

“This allows more flexibility to fund managers to transact in derivatives other than for risk management purposes. It would also allow unit trust managers to launch new products that predominantly invest in derivatives,” she said.

To increase domestic fund managers’ competitiveness in the region, Zarinah said SC’s approval for fund managers venturing into foreign markets would be removed on condition that the markets fulfil certain criteria, such as their home regulator being a member of the International Organisation of Securities Commission (IOSCO).

She also said cash borrowing restrictions would be lifted to allow for redemption requests without the need to dispose of assets in a fund’s investment portfolio, which could affect the interest of the remaining unit holders.

Asked on the SC’s move to revise its unit trust regulations, ING Funds Bhd chief executive officer Steve Ong said: “This would help local fund managers to respond better to market needs and market volatility because investments today are moving very fast.”

“As we are looking at different asset classes and investment structures, this move towards relaxing guidelines and restrictions would give fund mangers the option to structure more product solutions for customers.”

On the issue of wholesale funds, the SC would allow cash borrowing for investment purposes as wholesale fund investors were more sophisticated and receptive to higher levels of risk, Zarinah said.

“The relaxation to borrow cash for investments will provide greater flexibility for fund managers to meet investor’s expectations,” she said, adding qualified investors (institutions) for the fund would be expanded, allowing trust asset investors with more than RM10 million to invest in wholesale funds.

SC revises guidelines to boost unit trust industry!