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Giving banks a run for their money

This article first appeared in Starbizweek, The Star, on Jan 28, 2017.
Published in The Star on Jan 28, 2017.

Giving private bankers a run for their money are fund management companies and smaller enterprises like boutique fund management firms. It’s a known-fact that non bankbacked fund management companies in Malaysia manage a substantial amount of wealth although it’s not clear how much exactly.

In Malaysia, these include players like Areca Capital, Fortress Capital, icapital.biz Bhd and KSC Capital Bhd.

Areca CEO Danny Wong, who manages RM700mil in funds, says business is growing steadily owing to emerging wealth amid increasingly volatile markets.

Notably, the industry continues to evolve with the recent entry of boutique fund management firms which claim to charge overall lower fees than its competitors.

Recall in 2015, the Securities Commission (SC) liberalised its rules governing the fund management industry and allowed for the setting up of boutique fund management firms which require smaller paid-up capital.

In other words, it allowed for parties which had fund management expertise and a paid-up capital of RM500,000 to be licensed by the SC compared to an earlier RM2mil requirement.

Malayan Traders Capital (MTC) which is founded by three friends in their early 30s – chief investment officer Devan Linus, deputy chief investment officer Aaron Yew and deputy CEO Donovan Ng – took up SC’s liberalisation offer and now calls itself the country’s only boutique fund management firm and one of those which compete for the same client segments as private banks.

Also known as MTC Asset Management (M) Sdn Bhd, MTC, which is a hedge fund currently manages over RM150mil.

Despite the relatively small amount, Yew says MTC is in direct competition with private banks – but only to a certain extent.

“Yes, in the sense we are competing for client dollars and in the same client segments. However, we manage client funds with the aim of delivering a strong return on their invested money, while private bankers only advise clients and provide access to loans and other banking products,” according to Yew.

In that sense, private bankers are more akin to financial advisors, he adds.

“In fact, most private bankers work with investment managers like ourselves to invest their clients’ funds.”

In differentiating itself from private banks, MTC’s founders say they are investors in their own fund, so clients know that they “are putting our money where our mouth is”.

“We also own our company whereas private bankers are typically employees of banks and financial institutions, and tend to move from one employer to another. As owners, we are here to stay and provide our clients with a sense of stability,” Linus says.

Linus, whose grandfather was the first Malaysian to become the chairman of the then Stock Exchange of Malaysia and Singapore in the 1960s, adds that MTC only invests in “safe, blue-chip companies around the world”, mainly in the US, UK and Australia.

Headquarted in Malaysia with a presence in Singapore, MTC has registered an average annual return of 18% nett since its inception in 2012.

“Our performance is measurable – our target is 20% per annum over a three to five year period,” Yew says.

Yew notes that it’s been a difficult 2015 to 2016 for funds generally, and the ones that have failed to perform over the past two to three years have either closed down or are scaling back their operations.

“I think hedge funds that employ very complicated strategies or ones that use a black box to invest are going to struggle as investors become more and more wary and move towards strategies that are simple yet time-tested.”

“I also think that funds investing in bonds or fixed income are going to struggle with interest rates now moving the opposite direction. MTC employs a very simple equity investing strategy that has worked time and time again, and we have been delivering healthy returns of more than 15% per annum.”

According to Ng, MTC clients are typically senior management of large corporations, partners at professional services firms and business owners, mostly in their 40s to 60s.

“These are very busy and successful people who invest a lot of time in their careers and businesses and thus have little time to invest their savings – as you know investing is a full-time job and our clients trust us to do the heavy-lifting for them.”

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