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This article first appeared in The Edge Malaysia Weekly on October 14, 2019 - October 20, 2019

HSBC and Bank of Singapore are set to emerge in Malaysia’s asset management (AM) scene, sources say, adding to the 80 existing players in a development that points to increasingly intense competition ahead.

The two are entering at a time the local AM industry is showing signs of slowing down after more than 20 years of strong growth.

Industry sources say HSBC is in the process of establishing an AM business here.

“It is in the midst of setting up its team, looking to hire a CEO, CIO (chief investment officer) and so on. The process is such that you need to have a basic set-up and concurrently apply for a licence [from the Securities Commission Malaysia], ” a source tells The Edge. HSBC Bank Malaysia Bhd declined to comment.

The potential move comes amid reports that London-based HSBC may cut as many as 10,000 jobs in a cost-cutting drive, with Europe bearing the brunt of the initiative.

As for Bank of Singapore, its wealth unit agreed in June to acquire Pacific Mutual Fund Bhd for RM35.6 million in a move that will allow it to expand its presence in Malaysia. The deal is understood to be pending regulatory approvals.

Bank of Singapore is the private banking arm of Oversea-Chinese Banking Corp Ltd (OCBC).

“Pacific Mutual is largely a unit trust company now, but with the entry of Bank of Singapore, it will probably be a lot more than that,” an industry source opines.

In a recent report, the Institute for Capital Market Research Malaysia (ICMR) says the Malaysian AM industry may have reached an inection point following strong growth in the last 20 years.

“The industry may have reached a point of inflection with signs of slowing growth, especially in the last five years. In addition, the sustainability of this growth is under question as industry shortcomings are increasingly being voiced by investors, regulators and the industry players themselves, both through the dialogues and the results of our proprietary survey,” ICMR says, in a joint research report with the Japanese Nomura Institute of Capital Markets Research (NICMR), titled ‘The Evolving Business of Asset Management: Malaysia’s Perspective’.

According to the report, released in June, the industry — as measured by assets under management (AUM) — grew following the Asian financial crisis at a compound annual growth rate (CAGR) of 23.5% from 1999 to 2007.

However, the CAGR started to taper off after the global financial crisis to 12.8% from 2008 to 2018, to reach an estimated RM743.6 billion as at end-2018. (See chart.) Notably, in four of the last five years, the industry registered only single-digit growth year on year, and a contraction in 2018.

Be that as it may, that there are still newcomers to the industry points to opportunities in Malaysia, industry players say.

The country’s second largest AM player, Principal Asset Management Bhd (PAMB), for one, has a more optimistic outlook for the industry’s prospects. The industry’s growth may be slowing but individual companies can continue to thrive with the right strategies, says its CEO Munirah Khairuddin.

PAMB’s AUM growth has outpaced that of the industry in the last few years, and she believes this will continue to be the case over the next few years, underpinned by the country’s growing middle-income segment that will be seeking investment opportunities.

“I think the market CAGR over the last five years was only about 5%, but for us, it was about 7% to 8%. And if dissected further, our retail CAGR has been at over 20% over the last five years. So, I feel we have been fortunate, because we have been positioning our company in the right segment with the right capabilities and solutions,” she tells The Edge.

PAMB manages RM58 billion in assets at home, of which over RM700 million is in private retirement schemes (PRS). It is the No 2 PRS player in Malaysia.

There are currently 80 AM companies in Malaysia, according to the SC. Most are understood to be small.

Is this too many for a market like Malaysia? “I think it’s good to have many asset managers, provided they can differentiate their proposition to the customers. We are a large asset manager, so we probably have the breadth and depth to offer a multitude of solutions. But I also applaud and welcome niche boutique managers, because they serve a certain market segment, but that differentiation needs to be made clear, [if not], it’s difficult to survive,” Munirah opines.

According to the ICMR-NICMR report, among the key challenges AM players face are the ability to scale up or to meet growing investors’ demand for innovative and dierentiated strategies, a dearth of talent and lack of digital capabilities.

“These challenges are real and have to be considered alongside the realities of forthcoming fundamental shifts in the industry. Apart from grappling with the cyclical macroeconomic and market uncertainties, there are structural evolutions in the AM industry, which will bring far-reaching consequences,” the report says.

“These include changing demographic trends, shifts in investors’ preferences, the advent of digitalisation, tighter regulatory requirements demanding higher thresholds of accountability, governance and transparency as well as the pervasive lack of specialist talent.”

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