Kenanga Investors Bhd executive director and CEO Ismitz Matthew De Alwis has taken a different approach to grow the fund house’s business. In the first part of the series, this includes coming up with unit trust funds that look at absolute returns and focusing on the younger generation.

KENANGA INVESTORS BHD CEO and executive director Ismitz Matthew De Alwis is not one to follow the herd. For instance, while some players in the industry tend to focus on introducing new funds, he believes that a company shouldn’t have too many unit trust fund launches. 

“How many Malaysian equity funds can you have? It is more important to have a range of funds that stay on the risk-reward spectrum. We will only fill the gap if we don’t have that particular fund,” he tells Personal Wealth. 

“As a fund house, I believe we have fulfilled the Malaysian spectrum. If we launch any new funds, it will be more on a regional basis.”

De Alwis also prefers to focus on coming up with new unit trust funds that look at absolute returns, instead of relying on benchmarking as a performance indicator. Many unit trusts use benchmarks based on stock or bond market indices. In contrast, funds that look at absolute returns are more concerned about the total returns they receive from the assets they are invested in.

“Let’s say you benchmark against the FBM KLCI, which is at -10%. If your fund is at -5%, you have already outperformed the benchmark, even though [your fund] is at -5%. Beating the benchmark can still mean negative returns.

“We have come to a stage where this generation of investors are educated and are not looking for superstar funds or a one-year wonder. They just want it to be consistent. That is why we ensure that our funds have [steady] three, five and 10-year records.” 

Kenanga Investors launched its first absolute return fund — the Kenanga Asia-Pacific Total Return fund — in July 2013. As at the end of last month, the equity growth fund had more than 40% of its allocation in Hong Kong and 10% each in Taiwan and South Korea. The fund promises a compound return of 10% per annum.

Absolute return funds don’t necessarily carry more risk than benchmark ones, according to De Alwis, as they still subscribe to picking stocks with good fundamentals and supportive valuations to generate positive returns. Since these aren’t relative performance funds, he adds, they don’t have to hold stocks they don’t like even if the stocks make up a huge weighting of the index.

Targeting working professionals

For its wealth management segment, Kenanga Investors is targeting working professionals, instead of high and ultra-high net worth individuals. “High net worth individuals have private bankers. But what about the working professionals who might not have RM3 million to RM5 million to set up an account? What about starting small, at the RM250,000 to RM500,000 level? These are the people who need wealth management and financial planners more than anyone else,” says De Alwis.

“There is strong potential in this area, and we are embarking on this on our wealth management side. The next elevation we want to provide our clients is a wealth management platform — KenWRAP — that will bring all this together in a consolidated system so that financial planners can service their clients with all the products in one place. We are targeting the distribution force in the first phase of the platform’s rollout, then later on to our clients.”

De Alwis hopes the platform will better serve the industry as he feels the terms “wealth management” and “financial planning” have not been realised correctly in the Malaysian landscape. There are self-designated financial or wealth planners who only sell one or two types of products, he says, and because people don’t typically pay for advisory fees in Malaysia, product pushing becomes common. 

“This has taken the industry a few steps backwards. Insurance products are pushed to you even though you may not need them, as they can get high commissions, compared to other developing countries.

“We are targeting financial planners and pure insurance and unit trust agents to use [the platform]. Commission is their bread and butter, so when you continue to pay high commissions, product development gets more difficult. But once you have multiple products under the platform you won’t be tied to the commissions and will focus more on assets under administration instead.”

Kenanga Investors rolled out the central bank-approved platform this month and is looking to promote it in the market over the next two to three months. 

Broad experience

De Alwis’ leadership style stems from his experience in and exposure to the region over the years. His career began as a field analyst in the fast moving consumer goods (FMCG) sector in the early 1990s. He moved to the Philippines in 1993 as an investment analyst when his company landed an account with one of the largest banking groups there. Later, he worked in China and Hong Kong, also as an investment analyst.

He came back to Malaysia in 1998 during the Asian financial crisis and joined a local bank. He then moved on to the bank’s securities arm and asset management arm, which eventually led him to business and product development. 

De Alwis joined ING at end-2003 to set up ING Funds Bhd — ING Investment Management’s arm in Malaysia — and served as its executive director and country head until it was acquired by Kenanga Investors in June 2013. He was then appointed deputy CEO at Kenanga Investors. He became executive director and interim CEO in August last year, and its CEO last month.

De Alwis has seen the financial industry evolve over the years. He recalls a time when banks in the Philippines, with their heavy security and grill bars, resembled pawnshops. 

“You would be fearful at the time. So the question was how to revolutionise product offerings and make banks friendlier. We had to move towards private desks and counters to sit down at, but changing mind sets was the bigger challenge,” he says. 

“And then on the business side of things, banks were only doing traditional products, such as deposits and loans. So how do we move to fee-based products like bancassurance or unit trusts? And in the Philippines, there was a trust issue. Was it safe to put [money] in a bank? People still put money in Milo tins or under their pillows.”

Another challenge the industry faced back then was getting the logistics and processes in place, which was made harder by the fact that the Philippines is an island nation. 

“How would you get all the bank branches connected? This is where you introduce a process and get people to follow it. By the time I left the Philippines, there were already changes in how the banks operated.

Banks were removing the ‘pawnshop’ grills and were becoming friendlier,” he says. 

China is another country whose banking industry has seen significant changes. When De Alwis was there, the government imposed full capital controls, few companies wanted to insure Chinese products and there was a proliferation of counterfeit notes.

“China wasn’t liberalised like how it is today. But that was interesting because I had the opportunity to get involved in a financial industry that wasn’t very open yet,” he says. 

“In Malaysia, you can operate across the country once you have a banking licence. But China’s licensing requirements is by province. So, if you operate in Guangzhou, you can’t just go to Beijing and open a branch there.”

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on April 27 - May 3, 2015.

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