In 1990, Inter-Pacific Asset Management, which is currently a wholly owned subsidiary of Berjaya Capital Berhad, was incorporated in Malaysia under the Companies Act 1965. It was in 2007 when the asset manager started the unit trust business with the launch of funds, and it now prides itself on having managed three unit trust funds, one wholesale fund and 1,500 private mandates, with the total funds under management amounting close to MYR350 million.
By practice, Inter-Pacific Asset Management is focused on unit trust funds and portfolio management. It is responsible for the overall management and administration of the funds objectives in line with the deed, Securities Commision and other relevant laws. Dato’ Dr. Nazri Khan (DDNK) as the CEO of Inter-Pacific Asset Management’s approach to investment has been a hallmark of its philosophy, which is underpinned by three essential questions: Is it a good business? Is it a good company? How much are they willing to pay for it? Asking such questions signals its full understanding of investment dynamics in Malaysia and global markets.
An important fact of the matter is that DDNK does not attempt to predict the movement of the market. Instead, he actively seeks undiscovered good businesses to invest in. This is how he operates on a fundamental level and strongly believes in his core that the earnings of the business will determine the value of the company. Such direction is necessary to pave the way for high return on investment and strengthen investor confidence, even in the midst of a crisis.
Today, the coronavirus pandemic has dwarfed the progress of world economies—and Malaysia is facing its own set of challenges. However, the Malaysian economy is expected to rebound faster on the basis of an effective lockdown index, which predicted that it is among the top three economies with a better scope to control and alleviate the side effects of the pandemic in 2021. Inter-Pacific Asset Management’s operating in the midst of a pandemic is a piece of its larger transformation on a global scale. This interview with International Finance sheds light on various aspects, such as DDNK’s approach, asset manager’s performance, unit trust funds, investment strategies and Malaysia’s path to post-pandemic recovery.
What is the chief business of Inter-Pacific Asset Management and how well did it perform in 2020 in light of the pandemic?
Inter-Pacific Asset Management was established as a fund management company in Malaysia. Its principal activity is fund management, provision of advisory services and management and distribution of unit trust funds. The management team holds a combined experience of more than 100 years. The current team comprises experienced fund managers and young talented people who have been able to strongly cope with the pandemic. In retrospect, 2020 has proved to be a challenging time for the asset management industry globally—and particularly in Malaysia as the pandemic has caused a lot of economic and investment uncertainties.
DDNK has adopted a dynamic strategy in managing funds, by using the appropriate momentum trading tools in the US market investment. Despite the precarious situation due to the pandemic in local and global markets, by a combination of fundamental and momentum-strategy technical analysis method, DDNK has been able to outperform major indices in the US with an average return of more than 80 percent for the US Private Mandate Fund and the local unit trust funds in Malaysia.
Why are the unit trust funds so important to Inter-Pacific Asset Management and how are they adding value to its portfolio management?
Currently, Inter-Pacific Asset Management offers local and global coverage in equity analysis. Most of our equity-based unit trust funds and individual private accounts managed have local and global exposure. At present, DDNK’s strategy applies international equity exposure and will additionally include three US market strategies in 2021 through our soon to be listed Dana Abadi, a US Shariah Unit Trust Fund; Dana Saadi, a US Conventional Unit Trust Fund; and Dana Ghani, a US Wholesale Fund. Unit trust funds are important to Inter-Pacific Asset Management because they are used by the public to gauge performance of fund managers in Malaysia.
Building a good track record in managing unit trust funds is considered to be the epitome of a successful fund management company. Those efforts in turn will make Inter-Pacific Asset Management’s products very competitive in the market as investors continue to choose a trusted and consistent brand that can deliver good return on investment over a period of time. The strength of DDNK is rooted in actively seeking to own a diversified pool of Islamic compliant securities in US dollars with an investment objective of capital preservation and high targeted return on investment. The benefit of holding a portfolio among US stock markets and selective global stocks provide investors with means of gaining exposure to international issuers in their respective economic environment. In the global economy, the decline of the Malaysian Ringgit can cause Malaysians to potentially experience a reduction in their purchasing power that can also potentially undermine the preservation of capital.
What is the prime difference between each of those unit trust funds and what are the individual strategies adopted to maximise capital gains?
Each of the unit trust funds offer different opportunities for our investors, and they segregate Shariah investment from conventional investment. First: Inter-Pacific Dana Safi (IDS) is an actively managed Shariah equity fund that is developed to achieve its goal of maximising capital gains by investing in Shariah approved stocks listed in Bursa Malaysia. To achieve its investment objective, between 70 percent to 95 percent of the fund’s NAV may be invested in shares that conform to Shariah principles. It has a flexible asset allocation and may also invest in Shariah-based debt securities to help generate returns where yields are attractive and interest rate trends are favourable. Investment portfolio of the fund comprises instruments that have been classified as Shariah compliant by the Shariah Advisory Council of the Securities Commision or the Shariah Advisory Council of Bank Negara Malaysia. For instruments that are not classified as Shariah compliant by the Shariah Advisory Council of the Securities Commision or the Shariah Advisory Council of Bank Negara Malaysia, their status of the instruments has been determined in accordance with the ruling issued by the Shariah advisor.
Second: Inter-Pacific Dynamic Equity Fund (IDEF) is actively managed to achieve its goal of maximising capital gains by investing in stocks listed in Bursa Securities. To achieve its investment objective, between 70 percent to 95 percent of the fund’s NAV may be invested in shares. It has a flexible asset allocation and may also invest in fixed income securities to help generate returns where yields are attractive and interest rate trends are favourable. The allocations to fixed income securities are raised when weaknesses in the equity market are anticipated. Conversely, when equity markets are expected to perform well, the funds are reallocated from fixed income securities to equities.
Third: Inter-Pacific Social Enterprise and Responsibility Fund (ISERF) is a conventional wholesale equity fund that encourages social responsibility and social enterprise participation by utilising returns from investments. The fund will disburse 20 percent of the gain in the financial year—measured by an increase in the fund’s NAV within the financial year—either in the form of dividend declaration, capital repayment or any other methods, back to investors. The principal objective of the disbursement is for investors to participate in social responsibility projects and a cause of their choice. However, the actual utilisation of the disbursement is the sole discretion of investors. These are the three main funds that are currently managed by Inter-Pacific Asset Management and we believe that it offers investors a broad range covering retail, wholesale, Shariah and conventional segments. All of these funds are managed by DDNK and his team.
Has Shariah-based finance become a top pick in Malaysia and what is the impetus for it to gain momentum?
Malaysia’s history of Islamic finance started very early in the 1960s. The era of Islamic banking in Malaysia can be traced back to 1963 when Perbadanan Wang Simpanan Bakal-bakal Haji (PWSBH), currently known as Lembaga Urusan dan Tabung Haji (LTH), was established. Malaysia is considered a top destination for global investors in Islamic finance through banking and capital markets for more than six decades. Local investors have been exposed to Shariah-based finance as part of the government’s efforts in promoting Islamic finance, while the support from the Securities Commission on the capital markets has cemented Malaysia’s position among the top destinations for Shariah-based finance and investments. Malaysia is chosen because of its advanced position in Islamic banking and finance and the comprehensive legal and regulatory dual system is where conventional banking and finance functions parallel to Islamic banking and finance, which was then adopted.
What are the types of financial instruments that Inter-Pacific Dana Safi invests in in line with Shariah-based principles and what was the approximate achievement rate for its investment objective in 2020?
Inter-Pacific Dana Safi invests in the Shariah approved Bursa Malaysia equities. As there are not many financial instruments available in Bursa Malaysia, our concentration is towards the listed equities. There are some Islamic exchange traded funds available, but due to lack of liquidity, Inter-Pacific Dana Safi is almost 100 percent into the Shariah approved equities. To date, Inter-Pacific Dana Safi has met the objective by providing a ‘handsome’ return for investors. At the end of December 2020, Inter-Pacific Dana Safi that is currently managed by DDNK was ranked first by Fundsupermart and remains in the Quartile 1 of Lipper and Morningstar ranking.
Of the three unit trust funds, which one outperformed its peers in 2020 and why?
Of all the three unit trusts that Inter-Pacific Asset Management offers, Inter-Pacific Dana Safi reached the top in 2020 with more than 87 percent returns versus Inter-Pacific Dynamic Equity Fund and Inter-Pacific Social Responsibility Fund. This is attributed to DDNK’s strategy to focus on domestic technology, rubber gloves, healthcare and biotech companies, mimicking the performance of the US Nasdaq counters. In addition, Inter-Pacific Asset Management’s high portfolio turnover over the year has resulted in a more active movement of shares in the portfolio where we have successfully adopted a momentum trading strategy. DDNK was able to take profits from some of the companies and purchased the equities during significant market corrections.
What is the financial objective of wholesale funds and private mandates as part of Inter-Pacific Asset Management’s product offerings and how are they different from unit trust funds?
The US/Global Private Mandate investment that is currently offered by Inter-Pacific Asset Management is an opportunity for the mass market to access global markets. Currently, there are not many asset managers in Malaysia that can offer this opportunity as most of the exposure for the local asset managers lies in local equities. For as low as MYR50,000, investors can gain exposure to the likes of Tesla, Alphabets, Nvidia and Zoom in the US markets. This opportunity would provide investors with an alternative investment landscape rather than mired in the same country or region.
Furthermore, the US markets are always known for their powerful sectoral growth component, such as technology, artificial intelligence, internet and biotech. Wholesale funds target high-net-worth individuals, ultra-high-net-worth individuals and corporates with a minimum investment of MYR250,000. With all of these funds categorised under sophisticated clients, DDNK is able to offer more structured products to their needs compared to the retail market segment.
What is the role played by Inter-Pacific Asset Management in the administration and management of the unit trust funds in line with the deed, SC’s guidelines and other relevant laws in Malaysia?
Inter-Pacific Asset Management has always been supporting Capital Markets Malaysia which is under the purview of the Securities Commission. Adhering to the guidelines by the Securities Commission on the unit trust administration and agreement has been ingrained in the operational flow of Inter-Pacific Asset Management. Providing consistent feedback from investors to the Securities Commission is also part of Inter-Pacific Asset Management’s contribution to the industry. For the record, Inter-Pacific Asset Management has never been reprimanded for any breach of compliance by the Securities Commission or any other governing bodies in Malaysia due to its strict adherence to the guidelines.
Going forward, Inter-Pacific Asset Management will continue to contribute new ideas to the Securities Commission and other governing bodies in Malaysia. Taking a step further, which is not something that many asset managers in Malaysia would encounter, its experience in managing global markets through equities, exchange traded funds and other asset classes will be essentially important to the domestic asset management industry. Inter-Pacific Asset Management believes that the global market dynamics can be adopted and implemented in Malaysia by the Securities Commission and other relevant authorities. Other aspects point to efficient governance of short selling activities globally as well as leveraging exchange traded funds that can be looked into by the Securities Commission.
What makes Malaysia an attractive investment destination and what is your investment forecast for Inter-Pacific Asset Management over a six-month period?
As we move into 2021, Malaysia appears to look much better in our opinion. Despite the political uncertainties and resurgence of Covid-19, Malaysia is on the headlines for its domestic market. In our view, 2021 economic recovery will be underpinned by the effective roll-out of vaccines coupled with external growth and stable commodity prices as resumption of economic activities has allowed manufacturers to resume their operations. For the first half of 2021, we think that local large cap’s upside potential might be limited but a cyclical recovery could boost companies’ earnings within small to mid-cap and gain the interest of market participants. Against this background, we are optimistic about the prospects of the Malaysian economy and its equity market. As the major economies in the world are still suffering from the pandemic, we can never be too bullish and should not remain pessimistic at the same time. The stock markets may continue to climb higher or pause for a while—and we think that both are a game of possibilities.
What is the investment approach adopted by DDNK and what are the important factors considered for choosing to invest in a good business?
DDNK practices the untraditional strategies and investments like ultra exchange traded funds or long-term warrants that provide risk mitigation as well as consistent, attractive and resilient real returns. By combining fundamental and technical analysis, we are providing investors with a unique strategy that aims to generate returns that are less dependent on the overall movement of the stock market. This strategy is unique because we leverage financial instruments like inverse exchange traded funds for hedging or to generate income when we believe the market is overvalued. Through the use of these tactics and by strategically managing their exposure to the market, we should only have a modest correlation to other asset class returns.
Unlike the traditional portfolio management, we perform better than a buy-and-hold portfolio as we move investment time to time from poor performing stocks. DDNK practices an active portfolio strategy that aims to generate maximum value for our investors. That said, we focus on a specific class of assets or stocks that are off the radar or neglected by institutions. From an investment perspective, we believe that conventional value investing may be inadequate in a few developing companies where established institutions may be lacking and market forces are in an embryonic stage. Thus, we prefer our long book to be stacked with the most exceptional businesses because they surprise the world by compounding their value at unexpectedly high rates. Above all, our aim is to transfer the investment into potentially higher performing asset classes.
With Malaysia poised for a V-shaped, what is the anticipated influence on the domestic equity market for 2021?
Despite the gradual reopening of the economy and the roll-out of the vaccine, we expect the improvement to be broad-based sector by sector. In our view, the domestic equity market is predominantly plagued by political issues and overall it was bogged down by the 1MDB saga. The lacklustre scenario of the domestic equity market translates into investor disappointment on the back of not having a clear vision for policies. We are anticipating a few factors that could possibly affect the performance of the Malaysian market in 2021 such as the transition of power, the bubble of the US-China trade war and the delay of vaccines rolling out to the people. The road ahead remains bumpy coupled with local and external influences, but undemanding stock prices and a weaker dollar could see the market to play a catch up.
What is the current investment sentiment in Malaysia and how is Inter-Pacific Asset Management helping investors to rebuild their momentum through portfolio management?
Due to the pandemic, most Malaysians remain careful with their spending and this has hurt the economy at large. The six-month moratorium that was imposed by the government has helped most of the community to a certain extent, but the economy is still in a recovery mode. The political impasse in Malaysia and global pandemic has also caused local investors to be cautious of the overall situation. Inter-Pacific Asset Management has been very active in global markets where it offers investors a better alternative in finding strong returns, despite the protracted pandemic.
Investors that subscribe to the private mandate programme through a minimum investment of MYR50,000, which is considered to be one of the lowest initial investment for a global market, have been able to gain access to the global markets. The strong performance of DDNK shows that investor confidence has grown. The programme is still on-going and it saw Inter-Pacific Asset Management open a whopping 1,450 individual and corporate private mandate accounts worldwide.
How are money market funds currently performing in Malaysia and how Inter-Pacific Cash Fund is changing the game for the conservative money market funds?
Money market funds are one of the most sought-after funds in Malaysia mostly by corporates due to the zero capital tax gain. Inter-Pacific money market funds remain attractive to investors as the fee charges are very competitive compared to other asset managers. The other advantage of the cash management fund is that Inter-Pacific Asset Management does not impose any penalty for part withdrawals.
The investment calculation will still be based on the remaining balance unlike fixed deposits where penalty will be imposed on part withdrawals. In comparison, investors who place their money in fixed deposits may not get the accrued interest if they withdraw their money before maturity and since money market funds are still relatively alien to the retail investors, Inter-Pacific Asset Management has been introducing the fund to retail investors with a highly competitive fee, compared to other asset managers.
What were the uphill battles that Inter-Pacific Asset Management was challenged with in 2020 and what is the key takeaway from those encounters? Give an example.
Among the uphill battles that Inter-Pacific Asset Management faced during 2020 was the pandemic that caused investors to become sceptical about investments. The fact that most global markets dipped between February and March 2020 did not help the situation. Also, remote work has limited interaction with corporate clients as most of the corporates have decided to postpone any investment decision due to the current economic glut. Achieving effective communication through Zoom sessions was also a challenge to the team in Inter-Pacific Asset Management as investors still prefer to have meetings in person to understand more about the products. Nonetheless, after a few months of online meetings, investors were able to grasp the situation and things have progressed smoothly in the last six months.
Has Inter-Pacific Asset Management established its presence outside Malaysia and what is its key business focus for 2021?
Our main operation is currently focused on Malaysia, as it is easier and more strategic to operate within the environment that we fully comprehend. We are aiming to expand our presence into Singapore as our asset under management and clientele growth is expected to reach our target within the next two years. DDNK’s biggest aim is to create the first Islamic hedge fund in the world that first started in Southeast Asia. In the future, our key business will emphasise on consistent returns that beat market benchmarks and streamline our products and services.
How is Inter-Pacific Asset Management contributing to Malaysia GDP development overall?
Over the years, the fund management industry has played an important role in contributing to Malaysia’s GDP development. The total size of the capital market expanded to RM3.2 trillion as of 2019 from RM3.1 trillion in the year before. Notwithstanding the challenging global backdrop coupled with ongoing domestic policy reforms and surging coronavirus cases, the Malaysian capital market witnessed a higher level of liquidities in 2020. Against this background, we aim to increase assets under management, while addressing investor needs through expansion of our investment product offerings and differentiating our product platform from that of our competitors.
Will Inter-Pacific Asset Management introduce more Shariah-based financial products in the future?
The Shariah-based universe is always our niche, which is in line with our company objective to become the Islamic Hedge Fund company in the long run. Looking forward, we are planning to introduce more Shariah-based financial products. As of now, we are going to introduce a new unit trust that caters to the US market. The fund is Shariah-based Dana Abadi, a US Shariah Unit Trust Fund. Our private mandate will continue to focus on different strategies in the coming years for our private mandate investment.
Will Inter-Pacific Asset Management focus more on the Shariah-niche-base in its investment module?
Shariah-niche-based financial products have been our strength that cater to the demand in the local market. As we evolve, there will be more Shariah-based products to be introduced to provide more flexibility to our clients based on their risk appetite. For this year, we will be introducing Dana Abadi, a US Shariah trust fund to our local investors who seek Shariah-based financial products with competitive returns.