Linking governance index to investment portfolio

Malaysia has been the leading Muslim majority country for an extended period of time in our scoring system. But it stopped improving several years ago, says an asset management firm


Malaysia led the charge among Muslim-majority countries for “an extended period of time” on the count of governance before plateauing in the last few years, according to numbers tracked by a US-based asset management company.

With the change of government in 2018, there is hope that Malaysia will once again show better scoring on the quality of governance front, which is translated by the firm into how much investments should pour into the respective countries.

“Malaysia has been the leading Muslim-majority country for an extended period of time in our scoring system. But it stopped improving several years ago.

“With the political transition that took place last year, we see an opportunity for Malaysia to improve,” said Magni Global Asset Management LLC chairman and CEO Kurt Lieberman (picture).

During an interview in Kuala Lumpur, Lieberman told The Malaysian Reserve that scandals are lagging indicators as they show what has already happened.

“We measure what actually happens, not what people say. Scandals do not affect our ranking because it’s not the scandal that is the issue, but what allows it to occur,” he said.

Magni Global is focused on country-level governance standards as a basis for sound investment and returns.

“We measure 47 identified investible countries on more than 280 qualitative attributes. The higher the score, the more the country should be in people’s portfolio,” he said.

In essence, Magni Global assesses the investible countries of the world for the quality of governance.

The scores tabulated are based on what the firm deems as well-accepted economic ideas, as codified in the sustainable value creation principles. Country trends are published every quarter.

Magni Global uses the scores arising from its research to produce investment portfolios which are published as indexes.

According to Magni Global’s country research chart as at end-2018, Malaysia’s score remained “unchanged”, while its rank was “declining”.

Lieberman said Malaysia received a small upgrade in 2017 for strengthening protections of shareholder rights.

Prior to that, the second most recent change in Malaysia’s score came in late 2015 when Magni Global gave Malaysia a small upgrade for somewhat greater transparency into fiscal policy.

Malaysia ended a period of consistent improvement around the end of 2012, according to its scores.

Magni Global scores every country in the world based on its adherence to the sustainable wealth creation principles. It then ranks every country based on its score to construct its portfolios.

A change in score or rank may change the allocation in a portfolio.

Lieberman claims that his firm is the only one with a comprehensive view of governance.

“We have a proprietary model that takes data and turns it into a score.

“It helps us to distinguish intent from actual behaviour — is someone just saying something or is something actually happening in the country?” he said.

Improvements on the Cards
Lieberman said Magni Global’s numbers suggest that Muslim-majority countries are improving faster than other emerging countries and the rest of the world as a whole.

“However, the pace is not enough to move them into a leadership position,” he said.

The seven Muslim-majority countries in the company’s index are Malaysia, Indonesia, Turkey, Pakistan, Egypt, the United Arab Emirates and Qatar.

Saudi Arabia is not considered as investible at this point as its equity market was off-bounds to the outside world just two years ago.

Shariah Input
From the Shariah perspective, Lieberman said Magni Global is committed towards taking into account Maqasid Al Shariah, or the purposes and objectives of Islamic law, into its operations.

“Too often, people look to get a fatwa that whatever they are doing is Shariah-compliant, and then they fall back to Western models for portfolio construction and investment. There is a big gap, and we believe that we fill it with our portfolios.

“Shariah compliance is preventing haram. Islam is that which is good.

“It is not only taking out the bad, but recognising the good and rewarding it — increasing the investment for it,” Lieberman added.

On that score, Lieberman said Magni Global recognises companies that do more good and that are better run.