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Aberdeen’s first-mover status in Malaysia pays off
By Rita Raagas De Ramos | 7 April 2008

Aberdeen is among the five foreign fund managers that are permitted to operate in Malaysia. The firm is now pursuing an Islamic funds management licence in the country, according to local managing director Gerald Ambrose.

In March 2005, Malaysia opened its doors once again to a maximum of five foreign fund managers and five foreign stockbrokers to set up 100% foreign-owned operations to cater to institutional investors. UK-based Aberdeen Asset Management was the first to step up to the challenge and was the first to be allowed by regulators to set up operations in Kuala Lumpur to manage portfolios for institutional clients.

That made Aberdeen, through its Aberdeen Asset Management Sendirian Berhad entity in Malaysia, the first foreign fund manager to have a presence in Malaysia in eight years. Four other foreign fund management companies have since set up fully owned operations in Malaysia, namely Nomura Asset Management, BNP Paribas Asset Management, Credit Agricole Asset Management, and Franklin Templeton Investments.

Gerald Ambrose, managing director at Aberdeen in Kuala Lumpur, spoke to AsianInvestor about its operations and the local market.

What was the advantage of being the first foreign fund manager to set up in Malaysia after eight years?

Ambrose: At that time, other large fund management companies were probably looking at India Korea, and China, their focus was North Asia. The initial reason for Aberdeen to have offices in countries is so we can be on the ground to visit companies, which is a must in our investment approach.

Our experience in Singapore in 1992 was sort of similar to the one who had here. The Employees Provident Fund (EPF), just like Singapore’s Government Investment Corporation, gave us some seed money to manage here in Malaysia as part of a special scheme that they announced shortly after getting our license. Shortly after, our relationship with the EPF improved and the pension fund has given us more funds to manage here in Malaysia. [Aberdeen is one of three fund managers with overseas mandates from the EPF. The others are Paribas Asset Management and Nomura Asset Management.]

Was being first mover in Malaysia crucial in getting the overseas mandate from the EPF?
I suppose you could say that. It is not a huge amount. [Only around 5% of the EPF’s $100 billion in assets are overseas.] The EPF is worried, quite understandably, that after an eight-year absence in equity markets, they will pour money in overseas markets and find out that they perform hugely worse than the Malaysian market. The EPF represents the people of Malaysia and foremost on their minds is not to lose money. The EPF trusts us to be sensible long-term investors who don’t trade the market. We don’t follow momentum, we follow fundamentals.

How much seed money were you given at the outset?
At the beginning, the seed money was enough to cover our costs. The EPF is now a very important client of Aberdeen and form a major part of the AUM we manage here. We have been awarded mandates to manage funds for other government-linked investment companies and a couple of insurance companies, but the EPF is still the elephant in the bath and are important to us here.

What is your AUM?
We have the equivalent of over half a billion US dollars in terms of money managed and won by us. The lion’s share of that amount is delegated to our Singapore office for the management of regional funds, our Edinburgh office for global equity, and our London office for global emerging markets. We also manage money for Malaysian institutions offshore.

In terms of money managed from this office, it is around RM550 million ($172.2 million). Around RM200 million in invested in the Malaysian market.

What are the opportunities that you see in Malaysia at this point?
We have an investment process and an investment style that I believe suits pension funds, central banks, and that is where I see the main opportunities for us. In addition to that, another opportunity is managing more funds for clients outside Malaysia, given the significant relaxation of the limits to investing overseas and the almost complete lifting of the capital controls. [The Malaysian ringgit still cannot be traded overseas.]

We are exempt from the 50% rule. [Local fund management companies in Malaysia can invest only up to 50% of their total AUM overseas.] There’s no limitation on the amount of money we can manage offshore. The limitation is on the type of clients. We cannot compete with the local unit trust companies in the retail market.

We would like to tap the retail market, but around 80% of Aberdeen’s assets worldwide are institutional anyway. We’re not in a mad rush to go retail.

What are your immediate plans?
There are other elements to our business plan now. We are very interested in getting an Islamic fund management licence, which will allow us to tap the retail market. The license is available to everyone.

We manage an Amanah or an Asia ex-Japan equity fund along that is sharia-compliant, and it has around $100 million in assets. We manage it for a client who has a set of advisors and sends us a list of stocks that we can’t invest in. It’s just another filter through which our stocks have to go through. It is a unit trust with Middle Eastern subscribers, run by a bank there that has given us the mandate to manage the fund from our Singapore office.

We are keen to get an Islamic fund management licence. So far, there has been a lot of talk and a lot of meetings. The next stage would be to put things into paper, but there is no timetable.

Is Malaysia ready to be a global Islamic capital market hub?
It would need to import quite a lot of talent. The number of people professionally qualified to do this kind of thing right now is a bit small, just like it might have been in Singapore eight to nine years ago.

After capital controls were imposed, financial services was not seen as an attractive profession because horizons were limited then, so manpower shrunk quite significantly. People went into property development, gold or palm oil futures, anything but financial services. There is quite a serious shortage of people who are dealers, stockbrokers, fund managers, salesmen, settlement accountants, and other professional and semi-professional talent.

Malaysia sometimes has the image of xenophobia when it comes to companies wanting to locate here. The infrastructure is first class, all very much state of the art. But the capital controls that were imposed in 1998 still remain a bit of a stigma. At the top, they are more open, the government is working hard to improve the delivery system of the civil service but that doesn’t happen overnight.

What are the challenges you are facing now?
I think the challenge is not to generate hostility. We are here for the long-term. We are committed to Malaysia. We have been investing since the late 1980s in the stock market through our London office and then our Singapore office. In the late 1990s, we had a joint venture with the Malaysian Industrial Development Finance. When we had a chance to start something organically we took it.

Nobody knows what the future holds. But Malaysia’s income per capita, level of education, set targets for being a developed nation in 12 years time – all these factors make Malaysia a very good investment from our point of view.

Copyright AsianInvestor.net, a subsidiary of Haymarket

 


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