Regulatory authorities urged to focus on growing private market funds in Malaysia 

Regulatory authorities like Bank Negara Malaysia and the Securities Commission Malaysia are urged to engage key stakeholders to try and develop the private market funds ecosystem within the nation, just like what they did successfully for public market strategies such as in Shariah equity and Sukuk funds. 

“This would be the next area of growth for the Islamic investments landscape,” proposed Principal Islamic Asset Management CEO Izad Sallehuddin, “It is imperative for the regulators to recognize the importance of developing the private markets ecosystem and the role it can play in developing the nation. There are very limited, if any, domestic private market funds offered by global asset management companies in Malaysia.” 

For example, in real estate, while major private market deals aren’t new in Malaysia, Izad noted that these are not structured as investment funds – but are still being set up as joint ventures or outright purchases. A fund framework would be more flexible and convenient, without being locked into specific projects. 

Drawing on the experience of parent and Nasdaq-listed Principal Financial Group, Izad said there are many Shariah compliant investment opportunities in private markets within Malaysia – especially those involving government-linked companies (GLCs). 

“If a GLC is looking to ‘lighten’ their balance sheet, their asset could be sold into a fund if the yield to investors is attractive, therefore allowing them to invest in new projects.” 

While a public fund structure like the REIT is already well-regulated within Malaysia, the same is not yet so for private market funds. Izad suggested that Malaysian regulators consider introducing more tax incentives and exemptions – to expand and promote the limited partnership structure already available via the Labuan financial center. 

Principal Islamic is looking forward to working together with key stakeholders to develop the private markets fund ecosystem, particularly in areas like real estate – recognizing the growth potential and impact it has on the economic growth of the country.  

“With the support of key investors and once the industry can build a track record and show off our capabilities, it will be easier for foreign investors to come in later.” 

Among the hurdles expected at the initial stage would be hesitations from investors, unsure of what level of risks are involved. As such, Izad said pioneers offering private market funds would likely need to provide extra incentives as mitigation until the industry achieves a certain maturity.  

In terms of fund size, Izad anticipates it would be in the region of RM50 million (US$12.15 million) for each investor – potentially institutions or high net-worth individuals – with fund sizes possibly going up to RM1 billion (US$243.08 million).