A year of new investment opportunities By: WONG WEI-SHEN

by **Cals** Sat 11 Jul 2015, 21:54

A year of new investment opportunities

Saturday, 11 July 2015
By: WONG WEI-SHEN

This year seems to be the year of new opportunities for the Malaysian investment community, thanks to the Securities Commission (SC) liberalising licence categories and introducing new frameworks.
This week, the regulator introduced new categories of licences, one of which, will be to make way for the setting up of boutique fund management companies. Additionally, the SC is expanding the scope for restricted dealing licences to listed securities and over the counter bonds, as well as loosening up the investment advice service provided to fund management clients.
The new rules will enable new trading platforms to enter the market, although these parties would still need to link up with a licensed stock broker for trade executions. As for the investment advice, the SC is now enabling asset managers to market their research to other parties apart from their clients.
Another notable initiative by the SC was its introduction early this year of a framework for equity crowdfunding (ECF), something which had already been growing in popularity in countries like the United States and the United Kingdom.
In a nutshell, ECF allows start-up companies and entrepreneurs to raise funds from the public in exchange for equity. This is a progression from the earlier version of crowd funding which did not entail the issuance of equity.

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While the SC is taking the necessary steps to push the country towards a more developed market, is the investment community ready for something that could shake things up?
Many in the investment scene are positive on the regulator’s move, as it opens up opportunities for entrepreneurs, and gives investors looking for returns a new avenue and experience.
Areca Capital chief executive officer Danny Wong welcomes the four areas the SC introduced recently. “I think the boutique fund management licence is a great effort to retain talent within Malaysia especially on an individual basis. The brain drain in Malaysia showed certain capable fund managers being attracted by countries like Singapore and Hong Kong. With this, individuals can apply for a licence that is low in capital and requirements, and can try their area of expertise in this industry,” he says.
These fund managers could be experts in certain areas, such as in ACE Market counters, or in using futures and options to hedge indexed stocks. “It would be good to have people like that and there is a need for that here. Investors may like this idea rather than to invest offshore,” he adds.
But, there are concerns on how these initiatives will be carried out and the risks involved.
“It came as a surprise really after a neighbouring regime shut down their boutique platform and made these boutiques switch to full-fledged fund managers,” says Fortress Capital chief executive officer Thomas Yong, referring to Singapore.
According to reports, the Monetary Authority of Singapore (MAS) had tightened the regulatory regime for the industry in 2012, resulting in many boutique fund managers closing shop.
Under the SC’s new category of fund management license, entrepreneurs and individuals could set up boutique fund house for as little as RM500,000 in paid-up capital, as opposed to applying for a full-fledged fund management licence, which costs RM2mil.
The boutique fund managers, however, can only cater their services to sophisticated investors, which are high net worth individuals and high net worth entities.
The individual’s total net assets must exceed RM3mil excluding the value of primary residence, or have gross annual income of more than RM300,000. High net worth entities would need to have a minimum of RM10mil in net assets.
Under the new licence, boutique fund management companies are able to manage assets up to RM750mil and have not more than 50 clients. Should the assets under management (AUM) exceed RM750mil, the company would have to notify the SC and reinstate the position within a month’s time.
But with this licence, industry players can expect more intense competition. Although some fund houses already focus on niche market areas, the entrance of boutique fund management companies would definitely add flavour to the game.
“Naturally, these boutique firms will have limited resources and they will be very niche. Although they are tapping on our existing market, it can’t be avoided. We have to face this as we develop,” Wong says.
Still, full-fledged fund management companies would have an edge over boutique firms, due to its size and difference in clientele. “Full-fledged players will be able to provide better service and quality because we have more resources. Typically we have more institutional clients rather than individuals, so our risk management is also very different. So naturally, boutique fund management companies won’t take away all our business, but it would give investors more choice, “ he says.
As for compliance, he says the industry should not over regularised by the SC. “In order to grow the market, we have to balance it out. The SC is playing their role to make sure the industry remains within their control,” he says.
Earlier in the year, the SC introduced the ECF framework, and approved six platforms, namely, Alix Global, Ata Plus, Crowdonomic, Eureeca, PitchIN and Propellar Crowd+, all of whom would be able to start operating by year-end.
Strangely, there are some ECF platforms that were not approved by the SC that are operating. One such site is Asian Crowdfunder, a pan-Asian equity-based crowdfunding platform.
Interestingly enough, one of its investment pitches is the neighbourhood pub, Sid’s Pubs Sdn Bhd. The pub targets to raise US$270,000 for 6.5% equity, and has so far gotten US$20,000.
While ECF has been in the US and Europe for a few years, it is new to Malaysia, and still a very foreign idea to some. The benefit of using ECF for start-ups and businesses alike is that they can raise funds in ways they never could before. However, there are issues that come with it, such as valuation.