This article first appeared in The Edge Financial Daily on May 17, 2017 - May 23, 2017

KUALA LUMPUR: Malaysian Rating Corp Bhd (MARC) has assigned an investment manager rating of IMR-2 to Kenanga Investment Bank Bhd’s fund management arm Kenanga Investors Bhd (KIB). The rating reflects its well-established investment process, strong risk management practice and operating track record.

In a statement yesterday, the ratings agency said these factors are counterbalanced by KIB’s moderate size and financial profile. KIB’s portfolio comprised 26 unit trust funds, 20 wholesale funds and seven private retirement funds as at end-December 2016. Its assets under management (AUM) stood at RM7.1 billion, accounting for about 1% of total AUM in Malaysia.

MARC noted that KIB’s AUM registered a steady growth over the last two years and it expects the pace to be maintained over the medium term. “MARC considers KIB’s investment management process as well entrenched, underpinned by a comprehensive investment analysis and portfolio construction process. These are supported by appropriate information systems that allow for methodical analyses and timely investment decisions.

“KIB also benefits from sharing common resources with its wholly-owned subsidiary Kenanga Islamic Investors Bhd,” the agency added.

MARC is also of the view that KIB’s 16-member investment team has sufficient expertise. However, the agency pointed out KIB’s profitability has been affected by recent weak market conditions, which have weighed on its funds’ performance.

Additionally, given its modest AUM size, the management fees generated are just about sufficient to meet its operating expenses. As such, MARC believes the growth in KIB’s AUM would be key in generating higher management fees to meet operational expenses and provide a buffer against more volatile performance fees.