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Saturday, March 29, 2008

History of Unit Trusts in Malaysia

Malaysia introduced the unit trust concept relatively early compared to its Asian neighbours, when, in 1959, a unit trust was first established by a company called Malayan Unit Trust Ltd.

The unit trust industry in Malaysia has therefore a history of more than four (4) decades. The development of this industry can be presented in chronological order as follows:

The Development of Unit Trusts

The Formative Years: 1959 -1979
The first two decades in the history of the unit trust industry were characterised by slow growth in the sales of units and a lack of public interest in the new investment product. Only five unit trust management companies were established, with a total of 18 funds introduced over that period. The industry was regulated by several parties including the Registrar of Companies, The Public Trustee of Malaysia, Bank Negara Malaysia and the Ministry of Domestic Trade and Consumer Affairs.
The 1970s also witnessed the emergence of state government sponsored unit trusts, in response to the Federal Government's call to mobilise domestic household savings.

The Period from 1980 to 1990
This period marks the entry of government participation in the Unit Trust Industry and the formation of a Committee to regulate the unit trust industry, called the Informal Committee for Unit Trust Funds, comprising representatives from the Registrar of Companies (ROC), the Public Trustee of Malaysia, Bank Negara Malaysia (BNM) and the Capital Issues Committee (CIC).

The 1980s marked a significant development in the history of the industry when the Skim Amanah Saham Nasional (ASN) was launched by Permodalan Nasional Berhad (PNB) in 1981. Despite only 11 funds being launched during this period, the total units subscribed by the public swelled to an unprecedented level because of the overwhelming response to ASN.

The 1980s also witnessed the emergence of more unit trust management companies, which were subsidiaries of financial institutions. Their participation facilitated the marketing and distribution of unit trusts through bank's branch network which widened investor reach.

The Period from 1991 to 1999
This period witnessed the fastest growth of the unit trust industry in terms of the number of new management companies established, and funds under management. The centralisation of industry regulation, with the establishment of the Securities Commission on 1 March 1993, coupled with the implementation of the Securities Commission (Unit Trust Scheme) Regulations in 1996 and extensive marketing strategies adopted by the ASN and ASB (Amanah Saham Bumiputera), played key roles in making unit trusts household products in Malaysia. Consequently, the total asset value of funds under management grew more than threefold from RM15.72 billion at the end of 1992 to RM59.95 billion at the end of 1996. The period also saw greater product innovation and deregulation of the industry.

Although the pace of growth of local unit trust funds has moderated since the financial crisis of 1997-1998, it has nevertheless maintained its upward trend.

The Period from 2000 to current
In 2005 the unit trust industry experienced another year of strong growth which saw the net asset value of managed funds capitalising 14.2% of Bursa Malaysia’s market at RM98.5 billion at the end of 2005. Further, the liberalisation of overseas investment rules (such as the increase in overseas investment limit from 10% to 30%) by Bank Negara Malaysia has seen unit trust management companies launching numerous offshore funds or realigning investment strategies of domestic funds to invest offshore up to the permitted limit which resulted in the launch of 10 offshore funds with an intended overseas investment exposure of more than 50%. As at the third quarter of 2006 the number of offshore funds with an intended overseas investment exposure of more than 50% is 38 which is clear evidence of the continued interest by the investing public for a better slice of the overseas market.

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