Malaysia's Private Equity Industry Requires Healthier, More Diverse Ecosystem

KUALA LUMPUR, Dec 14 (Bernama) -- Malaysia requires a healthier and more diverse ecosystem of fund managers and private investors to grow its private equity (PE) industry to address the country’s rising liquidity needs, according to the Institute for Capital Market Research Malaysia (ICMR). The independent think tank said Malaysia's PE industry is less diversified as most private funds are targeting early-stage venture investments. “As of September 2020, growth funds made up over 49 per cent of total Malaysia-focused private funds, aggregating US$157.7 million (US$1=RM4.23) in assets under management (AUM),” it said in a statement in conjunction with the recent launch of a research report on “Navigating Malaysia’s Private Equity Space: Challenges and Opportunities”. It said these funds were generally known as funds that typically take minority positions in investee companies without the use of leverage. “Buyouts and late-stage strategies comprised only 1.8 per cent and 0.4 per cent, respectively, of Malaysia’s total private funds,” it said. ICMR's report found the PE industry in Malaysia has remained sluggish, especially compared to growth levels seen in more advanced economies. According to data provider Preqin, AUM for the Malaysian PE industry has been growing at a slow pace of 6.7 per cent annually, from US$3.7 billion in 2010 to US$6.8 billion in 2020, compared to some developed countries that recorded growth of over 10 per cent. “While capitals are being deployed actively in search of attractive investment opportunities, most PE deals in Malaysia are concentrated in limited sectors such as consumer discretionary (56.1 per cent) and raw materials or energy utilities (12 per cent), unlike in other regions,” ICMR said. It said the COVID-19 pandemic has spurred private investors’ interest in other sectors such as technology and healthcare, but Malaysia still needs broader opportunities, especially in agriculture, financial and insurance services to address the growing challenges brought on by urbanisation, food security and infectious disease outbreaks. “More private investments are also needed in Malaysia’s halal industry to broaden existing verticals into areas such as pharmaceuticals, tourism, and healthcare, as well as to deepen industry connections with regional and global supply chains,” it added. Hence, the research institute said its report made several recommendations, including having policies to encourage more private investments in areas that would improve the resiliency and sustainability of the country’s economy, emphasising community and economic development activities, as well as bridging gaps between domestic and global private capital fundraising. ICMR chairman Munir Majid said the explosive growth in global private capital AUM offers enormous investment opportunities to revitalise the Malaysian economy, especially in the post-COVID-19 world. “But to spark the fire, we need a modern and robust regulatory regime for our PE industry, a pro-business environment, and continued government support through tailored tax incentives,” he added. -- BERNAMA