MARC has assigned an
investment manager rating of IMR-2 to Kenanga Investors Berhad (KIB) and
to KIB’s wholly-owned subsidiary Kenanga Islamic Investors Berhad (KIIB). KIB
is a fund management company managing both conventional and Islamic schemes
while KIIB solely provides Shariah-compliant investment management services.
This is the first
rating announced by MARC under its investment manager rating (IMR) methodology.
The IMR assesses investment processes and risk management practices in relation
to the size and complexity of investment management activities as well as the
investment manager’s vulnerability to financial or operational failure. MARC
believes that IMR will assist investment managers in discharging their
fiduciary duties, meeting the increasing demand for accountability and
maintaining good corporate governance. MARC is confident that an IMR can become
a catalyst for investment managers to achieve even better performance.
The rating on KIB reflects
its well-established investment process, strong risk management practice and
operating track record. These factors are counterbalanced by KIB’s moderate
size and financial profile. Wholly-owned by Kenanga Investment Bank Berhad
(KIBB), KIB serves as its parent’s fund management arm. It established its
first unit trust fund in 1996, and its portfolios have steadily grown to 26
unit trust funds (including those managed by KIIB), 20 wholesale funds and
seven private retirement funds as at end-December 2016. In addition, it also
manages privately mandated funds from government agencies and pension funds. As
at end-December 2016, KIB had modest assets under management (AUM) of RM7.1
billion, accounting for about 1.0% of total AUM in Malaysia. MARC notes that
KIB’s AUM registered a steady growth over the last two years. The pace is
expected 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 analysis
and timely investment decisions.
KIB also benefits
from sharing common resources with KIBB. Key support functions, including
information technology, human resources, internal audit and enterprise risk
management, are managed at the group level, providing KIB with significant cost
savings.
MARC views KIB’s
16-member investment team to have sufficient expertise. The investment team
comprises analysts and portfolio managers with senior team members having more
than 10 years of relevant experience in domestic and regional markets. KIB’s
fund strategy is deemed as less complex and as suitable for the domestic demand
environment. Its investments are mainly in traditional asset classes of equity,
fixed income and money market while its overseas investment activities are
relatively new, only accounting for 0.3% of its total AUM as at end-December
2016. The fund manager’s resources and infrastructure should be able to cater
for the additional AUM growth. Its key business strategy is to expand
distribution channels for investment products from its current base of 1,200
unit trust agents, 800 private retirement scheme agents and 18 bank and
non-bank institutional unit trust advisers across 11 regional offices.
MARC observes KIB has
adopted the governance and risk management framework of its parent KIBB, under
which clear and independent reporting lines between various risk management
functions have been established. Policies and infrastructure, which have
been put in place to manage compliance risk, conflict of interest, counterparty
risk and business continuity risk, are well supported by information systems
for risk analysis and compliance checking functions.
KIB’s investment
track record is strong, as about 80% of its unit trust funds outperformed their
respective benchmarks for the one-year, three-year and five-year returns.
KIB’s profitability
has been affected by the recent weak market conditions which have weighed on
its funds’ performance. Additionally, given its modest AUM size, management
fees generated are just about sufficient to meet its operating
expenses. In MARC’s view, the growth in KIB’s AUM would be key to
generating higher management fees to be able to meet operational expenses as
well as provide a buffer against the more volatile performance fees.
In respect of its
Islamic subsidiary KIIB, the rating agency notes the significant integration
with KIB through shared resources and infrastructure. KIIB has AUM of just
RM1.5 billion as at end-December 2016, reflecting the Islamic fund manager’s
nascent stage of growth.
Contacts:
Afeeq Amiri, +603-2082 2256/ afeeqamiri@marc.com.my;
Sharidan Salleh, +603-2082
2254/ sharidan@marc.com.my.
May 15, 2017
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