View Credit Analysis Report (605373)

SubcategoryFinance - Financial Institution
Date Article2021-01-04 00:00:00
MARC has affirmed the 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 a wholly-owned subsidiary of Kenanga Investors Berhad (KIB), the fund management arm of Kenanga Investment Bank Berhad group (Kenanga). Focusing exclusively on Shariah-compliant investment management services, KIIB is a relatively modest Islamic asset management company with assets under management (AUM) of RM1.5 billion accounting for about 1% of total Shariah-compliant AUM in Malaysia as at end-September 2020.

KIIB’s unit trust funds are channelled to it by its parent as it does not have a license to promote these funds. These funds are mainly invested in traditional asset classes, with equity funds constituting the majority of total AUM at 62.8%. The remaining AUM comprise money market funds (24.7%), fixed income (9.1%) and balanced funds (3.4%). As at end-September 2020, retail clients made up close to 80% of KIIB’s total clientele.

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. 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, supported by 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 and a risk analytics system. Its trading and backroom activities are highly automated using Bloomberg AIM and PORTIA systems. These systems allow for timely investment decision-making.

In terms of financial performance, KIIB recorded profit before tax of RM1.2 million in 9M2020 on the back of a higher revenue of RM2.9 million. Given that 70.6% of KIIB’s portfolio comprises equity funds, it will be a challenge for KIIB to grow its AUM as customers are more cautious in a volatile market in the near term. Against the challenging environment, MARC draws some comfort in KIIB’s investment performance. The rating agency also views the fund manager to have relevant expertise and adequate resources to execute fund strategies and meet its objectives.

Major Rating Factors:

  • Established investment management process; and
  • Strong governance and risk management framework adopted from parent.
  • Relatively small-sized asset management company; and
  • Moderate financial profile.
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