The growth in assets this year is double that of 2016, when asset growth was 4.25%, he said in a speech during the Kuala Lumpur Islamic Finance Forum this week.
He added that Islamic fund management AUM grew 13% to RM 149.6bn in 2016, primarily driven by the expansion of unit trust funds. Islamic funds account for around 21% of Malaysia’s fund management industry.
Malaysia is the largest sustainable investment market in Asia ex-Japan, accounting for 30% of sustainable investment, Zainal Izlan said, citing a report by the Global Sustainable Investment Alliance (GSIA). He believes that this is due to the country’s Islamic or shariah funds, which use exclusion filters in the investment process.
Asia (ex-Japan) sustainable assets stood at $52.1bn in 2016, according to the GSIA report. Without shariah-compliant products, total sustainable investment assets would be $34.2bn.
Shariah-compliant funds are invested in line with basic Islamic principles. For example, no stocks may derive income from gambling, alcohol, tobacco, pork products, adult entertainment or military equipment. The principles also restrict the use of some mainstream financial instruments such as debt-financing, charging interest or the use of derivatives.
Malaysia has been developing its sustainable and responsible investment ecosystem for both its capital markets and fund management industry, Zainal Izlan said.
The SC is formulating a sustainable funds framework, which is targeted for launch by the end of the year. The initiative is expected to enhance Malaysia’s fund management industry by broadening the range of investment fund products available in the market.
Islamic WM emerging
He added that the development of the framework may give rise to another area of significant potential, which is Islamic wealth management.
The Islamic wealth management segment has been identified as a key growth driver for Islamic markets on the back of higher growth in the Muslim population and a higher economic growth forecast for Organisation for the Islamic Conference member countries.
These factors are expected to contribute to SC’s Islamic fund and wealth management blueprint. The blueprint, which was launched in January, is a five-year development programme aimed to position Malaysia as the international centre for Islamic fund and wealth management.
“Malaysia already has a well-developed Islamic fund management industry, including an Islamic fund management licensing framework that has attracted leading global firms to set up their Islamic operations in the country alongside Malaysian-owned firms,” Zainal Izlan said.
Shariah investing, however, is not a driving factor for the mass affluent or for high net worth investors, according to a report by Boston-based research firm Cerulli Associates. The growth of Malaysia’s Shariah fund market was primarily driven by institutional investors, especially pension funds and government or quasi-government bodies.
High net worth individuals tend to seek returns irrespective of religious principles when investing, Rui Ming Tay, Singapore-based senior analyst at Cerulli Associates, told FSA in a past interview.
“They do not really mind whether the fund is shariah-compliant or not, as long as it can deliver [desired] performance.”