The study has taken a look at the kind of investment porfolios driving AuM growth in the Malaysian industry, and some of the challenges ahead.

A large driver of growth in assets under management in the Malaysian investment sector is demand for foreign investment funds, or FIFs, argues Cerulli Associates in an analysis of this market. However, it notes that distribution costs remain high and it can be expensive to build brand visibility.

Assets under management of such funds surged by 30.5 per cent to MYR29.6 billion ($6.8 billion) in the year to the end of October, the report said, citing data from Morningstar, the fund tracker. Some 24 FIFs were launched over that period, with an average asset size of around MYR56 million. Foreign-invested feeder fund AuM also rose sharply, up 34.5 per cent to MYR6 billion over this period.

Cerulli said foreign fund houses have become “increasingly active” in Malaysia in the past two years. The Aberdeen Islamic World Equity Fund, for example, more than doubled its AuM from MYR94.5 million at end-2014 to MYR256.3 million as of October 2015. UOB Asset Management has launched both wholesale funds and retail funds, while Amundi and Manulife expanded their Malaysian operations via acquisitions in 2014-2015, the report said.

From an offshore perspective, Schroders and BlackRock managed MYR2.3 billion and MYR1.4 billion of assets, respectively, via the master-feeder structure by end-October, up from MYR1.5 billion and MYR0.6 billion, respectively, at end-2013, it said. 

The report went on to note that some of the FIFs launched in 2015 also offered multiple currency share classes. Popular foreign currencies are the Australian dollar, the Singapore dollar and US dollar; there are two funds that offer share classes denominated in Japanese yen as well.

Dealing with the issue of the costs of building brand awareness and distribution, Cerulli said fund houses tapping the market via master-feeder routes will find that “fees are usually split three-ways between master fund manager, feeder fund manager and distributor”. As of October, average feeder fund AuM was about MYR86 million and the average equity fund management fee was roughly 1.6 per cent.

First-movers in such markets are more likely to form stronger partnerships with local players, which could eventually help pave the way for more asset gathering, Cerulli adds.