MARC Ratings has affirmed its investment management rating (IMR) of IMR-2 on Kenanga Islamic Investors Berhad (KIIB). 

 

The rating reflects KIIB’s well-established investment management process, supported by a prudent risk management framework that is sufficient for its relatively small-sized asset management business. 

KIIB is a wholly-owned subsidiary of Kenanga Investors Berhad (KIB), the fund management arm of Kenanga Investment Bank Berhad (Kenanga). With a mandate solely focusing on Shariah-investment management services, KIIB is a relatively small asset manager in Malaysia with assets under management (AUM) of RM2.4 billion, amounting to approximately 1.2% of total Shariah-compliant AUM in Malaysia as at end-June 2022. 

KIIB manages Shariah unit trust funds that are delegated to the company by its parent, KIB. As at end-June 2022, the funds are mainly invested in traditional asset classes, with equity funds constituting the majority of total AUM at 70.9%. The remaining AUM comprised money market funds (15.6%), fixed income funds (12.5%) and balanced funds (1.0%). Over the same period, retail unit trust funds made up 76.7% of KIIB’s total funds. 

KIIB leverages on the infrastructure and resources of its parent, KIB, thus reducing operational costs and strengthening efficiencies. Among the shared resources is a pool of investment personnel who have 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 (VaR) calculations and back-testing of investment portfolios. 

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

 

Similar to its parent, most of KIIB’s funds’ one-year return underperformed against their respective benchmarks. This notwithstanding, the funds’ 3-year and 5-year returns outperformed their respective benchmarks. 

Following an expansion in AUM by 44.4% y-o-y to RM2.2 billion, KIIB recorded a higher management fee of RM3.5 million (2020: RM1.7 million). This notwithstanding, revenue reduced to RM3.8 million in 2021 (2020: RM5.0 million) following lower performance fees of RM0.4 million. Coupled with higher expenses of RM3.8 million due to increased staff costs and marketing costs, KIIB recorded marginal pre-tax profit of RM10k in 2021 (end-2020: RM2.6 million). Given its small AUM size, KIIB’s financials are more susceptible to market movements. 

In 1H2022, on the back of larger AUM of RM2.4 billion, KIIB recorded higher revenue of RM0.95 million. This was driven by growth in management fees to RM1.03 million (end-June 2021: 0.99 million). As at end-June 2022, KIIB recorded losses of RM0.5 million.