KUALA LUMPUR: 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% of total Malaysia-focused private funds, aggregating US$157.7mil (RM668mil) 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% and 0.4%, 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% annually, from US$3.7bil (RM15.7bil) in 2010 to US$6.8bil (RM28.8bil) in 2020, compared to some developed countries that recorded growth of over 10%.

       “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%) and raw materials or energy utilities (12%), 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. — Bernama