History of Unit Trust Schemes and Private Retirement Schemes in Malaysia
THE FORMATIVE YEARS: 1959 – 1979
The first two decades in the history of the UT industry were characterised by slow growth in the sales of units and a lack of public awareness of the new investment product. The industry was also regulated by several parties including BNM, the ROC and the Public Trustee.
Malayan Unit Trust Limited was the first UTMC to be formed. The first UTS to be established was the First Malayan Fund, which had a limited life span of 10 years.
Following the departure of Singapore from Malaysia, the operations of Malayan Unit Trust Limited were divided into two parts: a Singapore-based company called Singapore Unit Trust Limited took over the Singapore operations, while the Malaysian entity went to Asia Unit Trusts Berhad, a subsidiary of South East Asia Development Corporation Berhad(SEACORP).
Malaysian Investment Fund, the first totally Malaysian UTS, was launched by Asia Unit Trusts Berhad on 2 December 1966.
On 24 June 1967, Amanah Saham Mara Berhad (ASMB) launched the First Mara Bumiputra Fund to cater to the needs of Bumiputra investors.
Amanah Saham Pahang Berhad, the first state-owned UTMC, was established.
Kuala Lumpur Mutual Fund Berhad (now known as Public Mutual Berhad and currently the largest private sector UTMC) was established.
MIC Unit Trust Berhad (subsequently renamed as MIC-TPG Unit Trust Berhad and later on known as KLCity Unit Trust Berhad) was established.
The government decided to utilise UTS as a vehicle to achieve its goal ofredistributing national wealth under the New Economic Policy. Through UTS, the government intended to achieve the New Economic Policy objective of increasing Bumiputras’ shareholding in public and private limited companies to 30% of total equity ownership.
THE PERIOD FROM 1980 TO 1990
During this period, an Informal Committee for Unit Trust Funds was set up to regulate the UT industry. The Committee was made up of representatives from BNM, the CIC, the Public Trustee of Malaysia and the ROC.
PNB launched the first national Bumiputra UTS - the Amanah Saham Nasional (ASN), which was sold at the opening price of RM1.00. This price was to remain unchanged until 1990.
Arab-Malaysian Property Trust Management Berhad (subsequently known as AmProperty Trust ManagementBerhad) launched Malaysia’s first listed REIT on the Kuala Lumpur Stock Exchange (now known as Bursa Malaysia).
The second national Bumiputra UTS - the Amanah Saham Bumiputra (ASB) - was launched at a fixed price of RM1.00 a unit. In a move to further encourage the growth of the unit trust industry, stamp duty on transfer of units in UTS was waived.
THE PERIOD FROM 1991 TO 1999
This period witnessed the fastest growth of the UT industry in terms of the number of new UTMC established and growth in funds under management. The introduction by the SC of its Guidelines on UnitTrust Funds and the enactment of the Securities Commission Act, 1993 brought about even greaterawareness of the unit trust industry and contributed towards its tremendous growth prior to the 1997 Asianfinancial crisis. Following the crisis, the steady growth in funds under management continued.
Total funds under management grew more than threefold from RM15.72 billion at the end of 1992 to RM59.95 billion at the end of 1996. The period also saw greater product innovation and deregulation of the industry.
The Guidelines on Unit Trust Funds were introduced by the SC to provide clear operational procedures and regulations to govern the UT industry.
The Securities Commission Act was passed. This Act vested the SC with the responsibility of regulating all matters relating to the UT industry. FIMM was established as a body to represent UTMC. The first Shariah UTS was launched by Arab-Malaysian Unit Trusts Berhad (subsequently known as AmInvestment Services Bhd).
The SC revised the Guidelines on Unit Trust Funds to streamline the procedures and to ensure a fair and consistent application of policies in considering proposals by UTMC. In a move to further encourage the growth of the unit trust industry, stamp duty on transfer of units in UTS was waived.
Pelaburan Johor Berhad launched the Dana Johor, the first state UTS to be opened to both Bumiputra and non-Bumiputra investors.
The first UTS to be offered with free term life insurance protection for unitholders on a blanket policy basis was introduced. Previously, life insurance cover was offered with the UTS on a partially subsidised basis, or the insurance cover was to provide unitholders who invested under loan plans with insurance to protect the interests of the lenders.
The revised Guidelines on Unit Trust Funds allowed UTMC to invest up to 10% of the NAV of UTS in foreign securities (subject to other approvals).
The first fixed income or bond fund in Malaysia was launched.
The SC issued Guidelines on the operations of property UTS, Guidelines allowing UTMC to delegate functions and appoint external fund managers, and Guidelines on loan financing of sales of units in UTS.
FIMM Secretariat was set up, led by a full-time Executive Director.
In an effort to open up the industry further, the SC introduced a number of new measures including:
- the Securities Commission (Unit Trust Scheme) Regulations, 1996
- stockbroking houses with a minimum RM100 million paid-up capital were allowed to set up UTMC
- foreign fund management companies were allowed to set up operations under new Guidelines issued by the SC
- EPF contributors were allowed to withdraw part of their money from their retirement account (Account 1) to invest in approved financial institutions including UTS.
The Malaysian Unit Trust Administration Course began. This course provides an introduction to the way a UTMC operates and was jointly developed by the FIMM and the Securities Industry Education, Australia. The latter conducted the training.
The UT industry moved towards a new era when PNB launched the RM3 billion Wawasan 2020 Fund, which was opened to all Malaysians (including non-Bumiputras) between the ages of 12 and 40. Like the ASB and the ASN earlier, the Wawasan 2020 Fund would remain at RM1.00 until further notice from PNB.
The Malaysian Unit Trust Funds Performance Table prepared by Micropal Asia Ltd (now known as Standard & Poor’s) was introduced. The purpose of this table was to provide investors with a means to monitor and evaluate the performance of the various UTS.
SC issued revised Guidelines on Unit Trust Funds.
FIMM Secretariat began registration of UTC to improve the standards and professionalism of those distributing UTS.
The regional financial crisis began, causing a significant decline in funds under management of the unit trust industry.
FIMM published "Understanding Malaysian Unit Trusts" to assist UTC in meeting the requirements of the Unit Trust Pre-Registration Examination.
UTC need to pass this examination in order to be authorised to distribute and market UTS.
The SC commenced issue of Practice Notes to Guidelines on Unit Trust Funds to assist industry participants in meeting its requirements, and to update the Guidelines.
Lipper was endorsed by FIMM as the second supplier of UTS performance data.
Following the Asian financial crisis, the unit trust industry began a steady upward trend in funds under management.
FIMM successfully bid to host the XVII International Investment Funds Conference in 2003.
The Unit Trust Examination (previously known as Unit Trust Pre-Registration Examination) was introduced. Alldistributors of UTS must pass the examination before becoming an authorised UTC to distribute UTS.
The New Millenium
The Unit Trust industry's preparations for the Y2K "bug" proved successful. FIMM issued its first Guidelines for the registration of IUTA for Marketing and Distribution of UTS.
FIMM issued its first Guidelines for the registration of IUTA for Marketing and Distribution of UTS.
FIMM issued By-Laws covering its Disciplinary Proceedings against members.
RHB Bond Fund, the first UTS with a single selling and repurchase unit price with no entry fee, was launched.
RHB Islamic Bond Fund, the first Islamic bond fund investing in bonds and other Islamic debt securities in accordance with Shariah principles, was launched.
The SC issued Practice Note 15 on Distribution of Returns from Unit Trust Funds – a total returns approach isadopted to measure and assess the performance of UTS. Major revisions to the Guidelines on Unit Trust Advertisements and Promotional Materials were issued.
FIMM hosted the Fifth Asia-Oceania Regional Meeting of the International Investment Funds Conference.
The first Malaysia Unit Trust Week was launched jointly by the FIMM and PNB.
The Malaysian Capital Market Masterplan was announced by the SC, highlighting significant opportunities for growth in the UT industry over the next 10 years including:
- online trading of units in UTS
- investigation of possible tax incentives for investors through UTS
- support for continued promotion of the benefits of investing through UTS
- encouragement for the further development of the financial planning industry
- development of private pensions as an alternative to EPF
- improved eligibility for EPF transfers to approved UTS
- review of restrictions on overseas-invested UTS
- streamlined UTS approval procedures through the SC
- promotion of Shariah UTS
- development of derivatives UTS
- removal of restrictions on UTS investing in exchange-traded derivatives
- promotion of bond UTS
- introduction of ETF
- introduction of venture capital trusts
FIMM hosted the XVII Annual Assembly of the International Investment Funds Associations
The computerised UTE and registration of UTC were introduced by the FIMM.
The SC issued Guidelines on Real Estate Investment Trust.
The SC issued Guidelines on Exchange Traded Funds.
ABF Malaysia Bond Index Fund, the first exchange traded fund was launched by AmInvestment Services Bhd
MAAKL Pacific Fund, the first foreign UTS was launched by MAAKL Mutual Bhd.
FIMM issued the first IMS on Standard Cut-off Time for Unit for Purchases and Redemptions
Dealing in Unit Trusts, the second edition of UTE manual was published to further strengthen the standards and professionalism of those seeking registration as UTC.
FIMM issued Guidelines for Registration of Institutional Unit Trust Agents and Corporate Unit Trust Advisers in 2000 and the Code of Ethics and Standards of Professional Conduct for the UT industry in 2001. Prior to this, UT funds were mainly sold by UTMC via its agents/consultants. The inclusion of IUTA and CUTA offered a wider sales channel to help grow the UT industry.
The SC issued the Guidelines on Online Transactions and Activities in Relation to Unit Trusts to facilitate UT transactions via online methods.
BNM revised the foreign exchange administration rule on limits on investment abroad by all resident funds managed by UTMC from 10% to 30%.
SC issued Guidelines on Restricted Investment Schemes to cater for accredited investors in recognition of their investment literacy and competency.
As investors are deemed to be more investment literate, lesser regulations are applied (i.e. onus is placed on the investor to know what he/she has invested in). This helped to reduce the cost of regulatory compliance and expedited the speed to market.
FIMM issued another four (4) IMS applicable to the Schemes and Scheme Providers on the following subject matter:-
- Forward pricing;
- Valuation for foreign portfolio;
- Exchange rate for foreign portfolio; and
- Publication of net NAV per unit
FIMM issued another two (2) IMS applicable to the Schemes and Scheme Providers on the following subject matter:-
- Single pricing regime: minimum disclosure standard; and
- Incorrect pricing: correction and reimbursement
Government announced the establishment of a RM3.5billion ETF to be seeded by government-linked investment companies.
The Malaysian REIT industry gained momentum with four new REITs listed on Bursa Malaysia in 2007. Foreign ownership allowed in REITs management companies was increased to 70% to strengthen the regional competitiveness of the Malaysian REITs industry to attract more listings and global investors. The SC also created a more facilitative environment by:-
- amending SC guidelines to expand permitted investments;
- streamlining valuation requirements with accounting standards;
- providing greater flexibility on remuneration of a REIT Manager and trustee; and
providing guidance on placement of new units to finance yield-accretive acquisitions by a listed REIT.
BNM’s liberalization on investments abroad has given investors the opportunity to minimize risk through diversification of investment across different countries and different regions. UT managers continued to launch new products that invested in foreign assets, either directly or through a feeder structure, thus offering a means for investors to have exposure in foreign assets and minimize single-country risk through professional management.
To facilitate licensed financial planners in distributing UT, the SC worked closely with FIMM, FPAM, MFPC and MAChFC. FIMM launched the revised Guidelines for Registration of Corporate Unit Trust Advisers in October 2007.
SC issued Guidelines for the Offering, Marketing and Distribution of Foreign Funds to facilitate product and geographical diversification as diversification was the crux of investing in a CIS.
Rebranding of FMUTM to FIMM.
FIMM was recognized as a self-regulatory organization to oversee the development and enforcement of UT distributors.
SC launched CMP 2 to strengthen the positioning of the Malaysian capital market to meet challenges from the changing global landscape and to support the national economic transformation process. Opportunities for growth in the CIS industry include:
- expansion of participation of investment management industry in VC, PE, direct investing and bond market
- promotion of socially responsible financing and investment
- establishment of PRS industry to complement existing mandatory schemes
- broadening of the range and scope of intermediation activities
- increasing market connectivity through strengthening market infrastructure to promote greater use of technology
- Enhance the role and capacity of unit trust agents and financial planners in attracting retail participation
- broadening the diversity of investment strategies in the investment management industry
- expansion of international intermediation capabilities
- widening Islamic Capital market’s international base
- strengthening information infrastructure to support transition to a highly electronic environment
- strengthening the branding of the Malaysian investment management industry.
FIMM issued another IMS on measuring and disclosure of return volatility.
SC issued Guidelines on Private Retirement Scheme and introduced the Private Pension Administrator to facilitate the regulation and oversight of the PRS industry.
Introduction of PRS examination and tightened passing requirements for CUTE.
The ASEAN CIS Framework MOU was signed in 2013 and five (5) funds were approved in 2015. The enhanced MOU was signed in 2018.
These initiatives were put in place to ensure product and geographical diversification given that diversification is the crux of investing in a CIS.
Extension of Code of Ethics and Standards of Professional Conduct to PRS industry in 2013.
A five-year PRS Youth Incentive was rolled out in early 2014 to encourage youths to save early for retirement.
In 2015, SC issued Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework (LOLA) for wholesale offerings of unlisted capital market products. Under this framework, unlisted capital market products can be launched and made available to sophisticated investors (comprising accredited investors, high-net-worth entities and individuals) once specified information and documents have been lodged with the SC via an online submission system. This significantly reduces time-to-market, as such securities can be offered to sophisticated investors as soon as the required documents and information have been lodged with the SC.
SC liberalized rules governing the fund management industry to allow the establishment of boutique fund management companies through a more facilitative structure
Incorporation of FIMM Consolidated Rules and Registration Manual and pre-investment form into Product Highlight Sheet in 2016.
In 2017, SC-led ETF task force recommends measures to spur innovation and drive industry growth with the aim to attract greater investor participation and incentivize issuances by ETF managers.
The SC introduced the Digital Investment Management framework setting out licensing and conduct requirements for the offering of automated discretionary portfolio management services to investors.
SC liberalized the fee structures for CUTA and CPRA in 2018 to provide more flexibility for them to determine their respective business and remuneration models.
SC introduced a registration framework for capital market service providers in 2018 with the release of the Guidelines on Registration and Conduct of Capital Market Services Providers. This framework streamlined the requirements and introduced registration criteria to create a level playing field among trustees.
PRS online enrolment and the MyPPA mobile application that enabled greater public access to PRS was introduced in 2018.
SC launched SRI Roadmap in November 2019 to drive Malaysia’s sustainable development.
SC announced liberalization measures of PRS to enhance the competitiveness of the industry in February 2020. To enhance long term growth for PRS members, the measures will provide more flexibility in asset allocation for PRS funds, such as allowing conservative funds to invest in foreign markets and for PRS funds to invest in ETF based on physical gold to increase asset diversification into alternative investments.