Growth potential for Islamic fund management

Islamic wealth management has great potential to be the next big thing but requires innovation to allow for its expansion, according to a banker from CIMB Bank Investment Bhd.

Shahril Simon, who heads group asset management at the bank’s CIMB Islamic division, said one of the key policy recommendations in Malaysia stated the support for the growth of Islamic funds and wealth management industry.

“Islamic wealth management is the next big thing and is part of the innovative solutions in Islamic finance and part of Islamic money management.

“Over the next decade, the Islamic capital market is expected to sustain double-digit growth,” he said at a panel discussion at the Labuan IFC Wealth Management Forum 2013.

Fund management or assets under management is valued at RM505.1 billion in Malaysia, while net asset value of the unit trust industry stood at RM294.9 billion in 2012.

Islamic assets under management (AUM) accounted for about 16% of the industry’s total assets under management or RM79.6 billion.

There are 18 Islamic fund management companies operating in Malaysia including Aberdeen Islamic Asset Management Sdn Bhd, AmIslamic Fund Management Sdn Bhd, RHB Islamic Asset Management Sdn Bhd, BNP Paribas Islamic Asset Management Sdn Bhd and KFH Asset Management Sdn Bhd.

Shahril noted there are hurdles that have to be removed to ensure the expansion of the segment in Malaysia, where Muslims are increasingly seeking Shariah compliant products.

He said it was critical to build domestic take-up capabilities for innovative domestic products and solutions to pursue the development of the Islamic fund management industry.

Shahril said Islamic wealth management is based on the Islamic principle of religion, life, intellectual progeny and property, which showed that Islam called for the efficient management of wealth from its beginning.

The Islamic capital market, at RM1.4 trillion, has enjoyed greater internationalisation through wider participation of foreign sukuk issuers from Singapore, the United Arab Emirates, Bahrain and Kazakhstan, he noted.

Given the fact that over 88% of Bursa Malaysia stocks are Shariah-compliant, which includes blue chips from various sectors. there are no limited supply of investment avenues that could benefit the investors in the Islamic wealth management arena.

Trends in Malaysian wealth favour a more prominent role for Shariah-compliant asset management while CIMB aims to expand AUM by 43% over a three year period, according to a Datamonitor Research paper dated 2012.

(The Malaysian Reserve / 01 July 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic forestry fund aims to tap crossover appeal

* Aims to raise $100 mln, sees viability at $30 mln

* Targets 15 pct rate of return, net of fees

* Combines Islamic and green investment themes

SYDNEY, July 18 (Reuters) - Luxembourg-based Sustainable Capital has announced the launch of a sharia-compliant forestry fund, part of a trend toward crossover products that appeal to Islamic investors as well as those interested in green investment.

The firm aims to raise $100 million in the open-ended fund, which starts its offering period next Monday and will invest in the agricultural, biomass and forestry sectors.

Islamic finance adheres to religious principles but the industry has only recently begun to stress the theme of wider social responsibility.

"Sustainability has been a challenging conversation in the Gulf, as it was regarded as a competing asset class. But energy security cannot be built on one source alone," Michael Young, the fund's investment advisor, told Reuters. "Countries are now embracing diversification."

Forestry has had to contend with a preference among many Islamic investors for more familiar real estate and hedge fund products.

In a bid to differentiate itself, Sustainable Capital has highlighted the inflation protection and steady-return qualities of its new fund, which will aim for a 15 percent rate of return net of fees.

It would be reasonable for most long-term investors to allocate 5 percent of their portfolios to green investments, though some preferences may go as high as 10 percent, Young said.

DISTRIBUTION

A fund size of $30 million would make the product viable, but reaching its $100 million optimal size could take from "three months to three years", Young added. The ultimate aim is to raise $250 million.

Capital-raising and achieving scale have been a problem for sharia-compliant fund managers, with 64 percent of the estimated 800 Islamic funds globally having less than $75 million in assets, according to consultants Ernst & Young.

This has prompted boutique firms, which often lack developed sales channels or established ties with Islamic financial institutions, to rethink their marketing strategies.

Sustainable Capital plans to use strategic partnerships to tap Gulf, Asian and European markets, in order to extend the firm's distribution capabilities and keep operating costs low.

It will seek at least two distributors in the Gulf, one focusing on Saudi Arabia. The firm sees the bulk of its investor base eventually coming from the Gulf and Asia, Young said.

CROSSOVER

One reason for the lack of close ties between the Islamic and ethical investor communities is geographical: Islamic investors have strong roots in the Middle East and southeast Asia, while the ethical investment industry has its strongholds in North America and Europe.

Also, green investments have generally been built using a "positive screening" approach, in which funds identify specific sub-sectors and economic processes which they like. Islamic finance has emphasised "negative screens" which forbid investing in areas such as gambling, tobacco and alcohol.

However, with its use of asset-backed deals, Islamic finance also has an ideological emphasis on promoting real economic activity instead of pure monetary speculation. So firms such as Sustainable Capital see commonalities with ethical investment.

In April, London-based Siyam Capital said it planned to launch sharia-compliant philanthropy, social housing and timberland investment products by the end of this year.

In March, a "green sukuk" working group was launched by the Climate Bonds Initiative, the Clean Energy Business Council of the Middle East and North Africa, and The Gulf Bond & Sukuk Association. Its aim is to promote issuance of sukuk to finance climate change investments and renewable energy projects.

By Bernardo Vizcaino

(Reuters / 18 July 2012)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysia's Value Propositions - Islamic Fund and Wealth Management

Malaysia's in-depth experience and solid fundamentals in Islamic finance developed over more than 30 years, offers strong value propositions to foreign fund managers to establish Islamic fund management operations in Malaysia.

Strategic Location

Malaysia, with its strategic location serves as a link between the East and West. The country is well-positioned to facilitate cross flow of funds and greater economic linkages between South East Asia and the Middle East. Foreign players who wish to seize the opportunity of these largely untapped and fast growing markets will find Malaysia an excellent gateway for this purpose.

As the economies of these regions continue expanding, Malaysia is expected to play a pivotal role as a regional financial hub and gateway, particularly for transnational investments and the sourcing of funds.

Through its various global economic interlinkages, Malaysia provides players with access to the financial pipelines of the region to tap surplus funds and the wealth of high net worth investors.

Adopt Global Legal and Regulatory Best Practices

Malaysia's legal framework caters for Islamic finance matters. There is a dedicated judge at the High Court level for Islamic finance matters. The Kuala Lumpur Regional Centre for Arbitration has specific capabilities to deal with Islamic contract matters. This legal framework enables the enforceability of Shariah based contracts for Islamic finance while providing governance and legal redress for Islamic financial institutions. It also provides for strong investor protection

In particular, the Capital Market Services Act 2007 (CMSA) defines the parameters for permitted capital market activities in Malaysia, while reinforcing the protection framework and promoting international best practices among financial institutions. These and other such regulatory guidelines have been instrumental in providing industry consistency and clarity for the Islamic Capital Market (ICM) in Malaysia. In addition, Malaysia's regulatory guidelines have also set benchmarks for other countries in developing their own Islamic Capital Markets (ICM).

The legal and regulatory framework is constantly reviewed taking into consideration latest market, products and Shariah issues to ensure continuous development in the ICM. 

Well-Developed Shariah Governance Framework 

The Securities Commission Malaysia (SC) has established a Shariah Advisory Council (SAC) to advise on issues related to the Islamic Capital Market (ICM). The approach was taken, by recognising the importance of Shariah compliance in the Islamic financial system which possesses distinctive characteristics when compared to the conventional system.

The SAC is also responsible for analysing specific issues related to the operations of ICM, to provide guidance and advise to investors, the government and industry.

Malaysia's in-depth experience and solid fundamentals in Islamic finance developed over more than 30 years, offers strong value propositions to foreign fund managers to establish Islamic fund management operations in Malaysia.

Strategic Location

Malaysia, with its strategic location serves as a link between the East and West. The country is well-positioned to facilitate cross flow of funds and greater economic linkages between South East Asia and the Middle East. Foreign players who wish to seize the opportunity of these largely untapped and fast growing markets will find Malaysia an excellent gateway for this purpose.

As the economies of these regions continue expanding, Malaysia is expected to play a pivotal role as a regional financial hub and gateway, particularly for transnational investments and the sourcing of funds.

Through its various global economic interlinkages, Malaysia provides players with access to the financial pipelines of the region to tap surplus funds and the wealth of high net worth investors.

Adopt Global Legal and Regulatory Best Practices

Malaysia's legal framework caters for Islamic finance matters. There is a dedicated judge at the High Court level for Islamic finance matters. The Kuala Lumpur Regional Centre for Arbitration has specific capabilities to deal with Islamic contract matters. This legal framework enables the enforceability of Shariah based contracts for Islamic finance while providing governance and legal redress for Islamic financial institutions. It also provides for strong investor protection

In particular, the Capital Market Services Act 2007 (CMSA) defines the parameters for permitted capital market activities in Malaysia, while reinforcing the protection framework and promoting international best practices among financial institutions. These and other such regulatory guidelines have been instrumental in providing industry consistency and clarity for the Islamic Capital Market (ICM) in Malaysia. In addition, Malaysia's regulatory guidelines have also set benchmarks for other countries in developing their own Islamic Capital Markets (ICM).

The legal and regulatory framework is constantly reviewed taking into consideration latest market, products and Shariah issues to ensure continuous development in the ICM. 

Well-Developed Shariah Governance Framework 

The Securities Commission Malaysia (SC) has established a Shariah Advisory Council (SAC) to advise on issues related to the Islamic Capital Market (ICM). The approach was taken, by recognising the importance of Shariah compliance in the Islamic financial system which possesses distinctive characteristics when compared to the conventional system.

The SAC is also responsible for analysing specific issues related to the operations of ICM, to provide guidance and advise to investors, the government and industry. (MIFC)

http://islamic-wealth-management.net

http://alfalahconsulting.com

Islamic fund and wealth management in Malaysia

Islamic fund and wealth management is the professional management of Shariah-compliant securities and assets based on Islamic principles to achieve set financial goals.

The scope of activity involves financial analysis, asset and securities selection, investment planning and ongoing monitoring of investment funds. Both individuals and institutions may become Islamic wealth and fund managers through the provision of related services. 

The Islamic fund and wealth management first emerged in the 1960s when Muslim investors sought an alternative to the conventional western form of investment, particularly due to interest-dealings in conventional banks (which is prohibited in Islam). 

Today, the global Islamic fund and wealth management sector is on the rise, underpinned by strong demand from Muslim and non-Muslim investors. The rising affluence of Muslim communities, who wish to invest surplus funds in a Shariah-compliant manner has been a pivotal factor in the growth of the industry. Another contributing factor is the non-Muslim investors' desire to diversify their investment through Shariah-compliant funds. 

Malaysia has achieved some noteworthy milestones in the Islamic fund management industry, beginning with the establishment of two Islamic unit trust funds in 1993. Malaysia also paved the way for several industry "firsts" for the Islamic fund management industry. Notably in 2005, Malaysia launched the first Islamic Real Estate Trusts (REITs) in the world. Equally significant was the introduction of Asia's first Islamic Exchange Traded Fund (ETF). 

These achievements were further supported with a mutual recognition agreement between the Securities Commission Malaysia (SC) and the Dubai Financial Services Authority (DFSA) for the cross-border marketing and distribution of Islamic funds between the two Islamic financial markets. 

The dynamic progress of Malaysia's Islamic fund and wealth management industry is supported by Malaysia's more than 30 years experience in Islamic finance and the overall comprehensiveness of the well-established Islamic finance industry in Malaysia.This consists of continuous product innovation, a large and diverse pool of Islamic finance talent, a diversity of local and international financial institutions from across the world, a broad range of Islamic financial instruments, a comprehensive financial infrastructure and supportive regulatory, legal and Shariah frameworks. Malaysia offers many attractive value propositions for foreign fund managers to establish their Islamic fund management operation in Malaysia. 

The domestic fund managers may also establish their Islamic fund management companies and enjoy various tax incentives and privileges that lead to reduction in the cost of doing business and expedient market entry. For more information on the establishment and application procedure for Islamic fund management company, please contact Securities Commission.

Foreign financial institutions also have the option of setting up in Labuan International Business and Financial Centre (Labuan IBFC), where the Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA) is the governing legislation of mutual funds business and operations in Labuan, supplemented by the Guidelines on Mutual Funds and the Guidelines on Fund Management Companies.

The LIFSSA and guidelines is the regulating framework on the formation of public and private funds in Labuan International Business and Financial Centre (Labuan IBFC). The Shariah compliance requirements are as outlined under the Directive on Islamic Financial Business. A mutual fund can be structured as a company, partnership or unit trust. The incorporation may be done under the Labuan legislations or the laws of any recognised country or jurisdiction. A mutual fund shall include an umbrella fund whose shares are split into a number of different class funds and participants, which are entitled to exchange rights in one part for rights in another.

To provide the above services in the Labuan IBFC, it must be a licensed fund management company from a recognised jurisdiction or an offshore company set by individual fund managers who are licensed by the relevant home supervisory authority. For more information, please contact Labuan IBFC. (MIFC)

KL Conference on Islamic Wealth Management & Financial Planning
http://islamic-wealth-management.net

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CEO / Consultant:  http://ahmad-sanusi-husain.com

Islamic Investment: http://islamic-invest-malaysia.com