MARC has affirmed its investment manager rating of IMR-2 on Kenanga Islamic Investors Berhad (KIIB). The rating reflects KIIB’s established investment management process, underpinned by a prudent risk management framework that is sufficient for its relatively small-sized asset management business. 

KIIB is wholly-owned by Kenanga Investors Berhad (KIB), a domestically well-established fund management company that is part of the Kenanga Investment Bank Berhad group (Kenanga). KIIB provides solely Shariah-compliant investment management services including managing unit trust funds and investment funds. KIIB is deemed as a modest Islamic asset manager in Malaysia, with assets under management (AUM) of RM1.3 billion accounting for 0.7% of total Shariah-compliant AUM in Malaysia as at end-2019.

KIIB’s unit trust funds are channeled by its parent as it does not have a license to promote these funds. Its funds are mainly invested in traditional asset classes, with equity funds constituting the bulk of total AUM at 74% as at end-2019. This is followed by money market funds at 20%, while balanced funds and fixed income funds stood at 1% and 5%. As at end-2019, retail funds (unit trust and retail wholesale funds) increased significantly to 80.9% of total AUM with the remaining 19.1% being institutional funds (2018: 71%; 29%).

KIIB leverages on infrastructure and resources of its parent, KIB, thus reducing operational costs and strengthening efficiencies. Among the shared resources is a pool of investment personnel, with sufficient experience in the fund management field. In terms of risk management, KIIB adopts the governance and risk management framework of its parent. Its risk management process is supported by an information system that allows for key risk assessments including stress tests, value at risk calculations and back testing of investment portfolios. According to KIIB, there have been no major risk management or compliance issues during the review period.

MARC considers KIIB’s investment management process as robust with clear investment policy goals. The investment manager uses a bottom-up approach for equity investments and a top-down approach for its fixed income investments.  Its investment strategy is supported by reputable investment analytics systems comprising Bloomberg Port and a risk analytics system. Its trading and backroom activities are highly automated using Bloomberg AIMS and PORTIA systems. These systems allow for timely investment decision making.

Against the backdrop of a challenging economic environment, the market performed poorly during the year. For 2019, we note that KIIB’s overall fund performance for the one-year, three-year and five-year returns outperformed its benchmarks. KIIB recorded lower revenue of RM1.2 million in FY2019 in tandem with a contraction in AUM, translating into losses before tax of RM0.6 million.