A Special Interview by Epicentre
Saturna Sdn. Bhd., a wholly-owned subsidiary of US-based Saturna Capital Corporation, recently launched the ASEAN Equity Fund ("Fund"), a Malaysian fund focused on public equities of Shariah-compliant companies in the ASEAN-5 (Malaysia, Indonesia, Singapore, Thailand and the Philippines). Epicentre speaks with Monem Salam, ASEAN Equity Fund portfolio manager and president of Saturna Sdn. Bhd. on the Fund and his plans for Saturna in Malaysia's Islamic finance marketplace.
Q1
As a global Islamic fund manager in Malaysia's Islamic finance marketplace, this is Saturna's first institutional fund. How do you expect this fund to perform in the region against the current global and regional economic background, and what are the team's capabilities here in Malaysia to manage the Fund?
A1
Saturna has been in Malaysia for four years and we have been working on this launch for a while. The journey has been supported by Malaysia's robust regulatory infrastructure that has allowed us to bring an innovative product to the market in the form of a unique fee structure. The Fund is designed to be fair, transparent, and aligned with the long-term interests of unit holders. It is also offered with no sales charge, low administrative fees and transparent distribution fees. Additionally, the management fee of the Fund is performance-based – the manager receives no fee unless the fund makes money for its investors. For institutional clients, we are able to offer them a daily liquid fund investing in equities, which gives institutions another avenue for investment. We have a very capable local team in Malaysia who oversees and executes the fund administration, fund management, and distribution, with support from our team in the US. Being a leader in Islamic finance in the asset management industry, Malaysia can compete internationally in the Islamic funds area. The Fund's management fees at the zero level helps move Malaysia further in this direction. The Fund was launched on 7 February 2014 with around RM10 million fund size. Growth of the Fund will be supported by the integration of ASEAN as well as by focusing on industry sectors which should perform well as the ASEAN-5 markets continue to develop and grow economically, namely construction and consumables.
Q2
Based on Saturna's strong track record in Shariah-compliant investment programmes globally and private ASEAN investment mandates, how is the Islamic ASEAN Equity Fund appealing to non-Muslim investors? Besides portfolio diversification, are there other reasons that would make the Fund appealing to all investors?
A2
The Fund is aligned very closely to the values of Ethical and Shariah-compliant Investing, which translates to full disclosure. Saturna has more than 25 years of Islamic investment experience and we have learned that whether or not you are an Islamic investor, you will invest in what's beneficial for you, which includes innovative low fee structures and a fund manager with strong track record and reputation. Money is agnostic, it goes where the returns are. Lower fees mean that you have a higher chance of outperforming other funds.
Q3
The fund is structured to be low base fee and performance incentivised fund for the benefit of investors/unit holders. On the flip side, will this encourage the fund manager to be aggressive in their portfolio allocation, i.e. investing towards more growth stocks (higher risk investments) to provide returns for the investors hence fees for the manager?
A3
At the heart of Saturna's investment philosophy, including ASEAN Equity Fund, is buy-and-hold. We are committed to managing this Fund for the long term. Research has shown that pure portfolio managers underperform when compared to portfolio managers who also perform other functions such as research and analysis; more trading means more opportunities for loss, and high trading volume also increases the cost of fund. Our more than 25-year track record in Islamic Funds Management proves our philosophy of buy-and-hold and we are confident it will hold true for the future.
Q4
What is your opinion on the trend of private banks moving/shying away from performance-based fees and towards flat fees for fund managers? Do you see this as a risk for the fund in attracting HNWIs?
A4
The majority of funds which are available to private banks work on a 2% management fee and a 20% performance fee, which is too expensive to sustain. Hence our Fund, which targets institutional investors and HNWIs, has a zero percent management fee and a 10% performance fee structure, which we believe is fairer across the board. Because of this, we feel the private banks may be more in favour of the Fund.
Q5
What are some of Saturna's plans for Malaysia and Asia, moving forward?
A5
We will wait and see the Fund's performance and are targeting a fund size of RM40-50 million by the end of this year. Saturna is definitely looking to build up its Kuala Lumpur office and capabilities; after all, we had a lot of choices across Asia when we wanted to set up. Saturna selected Malaysia for its attractive Islamic finance marketplace, with its regulatory infrastructure in place, diversity of people, and cost effective labour force. We are committed to building in Malaysia. Malaysia is Saturna's first office outside of the US, and it will serve as a hub for the rest of the world. Through the work of Securities Commission, we can bring our products from Malaysia to the GCC region, Thailand, and Singapore.