Thursday 28 Mar 2024
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This article first appeared in Forum, The Edge Malaysia Weekly on October 23, 2017 - October 29, 2017

While Malaysia has seen its fair share of economic and currency volatility in recent years, funds in the country have been experiencing a boom of sorts in assets under management (AUM). To attract further investment and retain fund already under management, technology will play an increasingly important role in competitiveness and client engagement for fund managers.

According to the Securities Commission Malaysia, total AUM in the funds management industry in Malaysia hit RM733.88 billion as at March 31. This was up almost 10% from a year earlier, more than 21% from three years ago and almost 70% versus 2012.

Malaysian assets have swung back into favour on the back of some positive signs in the broader economy. The ringgit was the strongest of all Asian currencies in the quarter to June this year, climbing twice as much as the renminbi over the same period. Meanwhile, Malaysia recorded the highest stock inflow in Southeast Asia in the first half of the year, with overseas investors buying up almost US$2.5 billion of Malaysian equities. Net inflows to the bond market have also surged in recent months.

This comes at a time when regulators in the country are taking steps to strengthen the depth, transparency and efficient operation of the country’s financial markets. Malaysia’s Financial Markets Committee, set up by Bank Negara Malaysia, is phasing in initiatives to promote fair and effective financial markets, bond market liquidity transparency and market information. These include the release of five “universal principles” for a fair and effective financial market and a new Code of Conduct for Malaysia Wholesale Financial Markets.

Beyond Malaysia, portfolio investment flows into Asia reached an unexpectedly high level of almost

US$58 billion in the first quarter of the year, according to the Institute of International Finance. Malaysia, it appears, is part of a rising tide for AUM in several parts of the region.

To capitalise on these favourable dynamics, asset managers need to be prepared for the growth of capital inflow, and leverage smart technology to support their expanding portfolios.

 

A new investment landscape demands new technologies

A stronger emphasis among increasingly sophisticated investors on the need to build financial reserves for the future means that asset managers, including in Malaysia, will need to re-evaluate how technology can play a strategic role in helping them manage growing, more diversified and multi-asset portfolios. It will also be a key to improving direct communication with investors of their brands and portfolio solutions.

Globally and in Malaysia, there are clear investment trends occurring in the market.

First, we are seeing higher thresholds of accountability with the buy-side due to changes in the regulatory landscape. Dodd Frank, Basel III and Markets in Financial Instruments Directive II (MiFID II) have fundamentally changed the way markets operate globally. Moves in Malaysia to enhance the transparency and accountability of investment advisers and others in financial markets mean compliance remains a top priority, for good reason.

In view of the indirect impact of MiFID II as it relates to research unbundling, chief investment officers in Malaysia need to better understand broker performance, and which brokers are achieving the best execution. Bloomberg’s Transaction Cost Analysis is a tool that helps quantify broker strategy, which in turn helps boost margins and direct profitability back to investors.

Secondly, investors are getting increasingly sophisticated, demanding a broader range of investment options, seeking bespoke solutions and, in some cases, investment managers are looking at adopting more quantitative investment approaches or bringing assets and systems in-house.

And thirdly, technology is playing an increasingly important role in fund management and in shaping financial markets. There is an electronification of markets occurring where leading market participants are moving from voice to electronic platforms. This will happen in Malaysia over time, as the benefits of best execution, cost efficiency and transparency to the end investor become clear.

As illustrated in a recent Greenwich report, the increase in technology spending by the buy-side has been driven by regulatory changes but, more importantly, by operational efficiency. Investment firms around the world are increasingly seeking the latest and best technology to preserve alpha and meet investor demands, to keep operating costs low and transparent.

 

Future of buy-side technology

Investment firms face a challenge in adapting to these new demands for timely and accurate data for financial reporting, above and beyond generating returns. This is driving the industry to adopt new technology and deepen their technology partnerships in order to be more innovative and efficient, and increase portfolio visibility.

Companies, including Bloomberg, that work with leading buy-side firms around the world are increasingly helping them to address these new challenges. In Bloomberg’s case, that includes building an integrated buy-side technology platform of the future — across portfolio analytics and management, operations, trading, post-trade and compliance.

As we see it, the next phase for the buy-side will not be about adding more systems, vendors and complexity, but “getting organised” — consolidating operations across the front, middle and back office to ensure seamless workflows, so firms can achieve optimal operational efficiency.

In a global environment of tighter regulation, extreme market volatility and the imperative for increased efficiency, Malaysia’s buy-side can get ahead of the curve by leveraging best-in-class technology. As asset managers adjust to these demands, technology has an important role to play in helping them adapt and, in doing so, freeing them up to do what they must do best — invest, innovate and drive returns for increasingly sophisticated clients.  


Andrea Mosconi is head of Bloomberg, Asean

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