Latest from Islamic Investment Malaysia

Sunday, October 10, 2010

Analysis: Crisis-hit Islamic funds set for recovery

(Reuters) - The asset management side of Islamic finance, which has been at a virtual standstill in the $1 trillion industry, is set to break out of its rut as demand rises for investment products catering to Muslim laws.

Consultants Ernst & Young estimate that between $360 billion and $480 billion of individual and institutional savings are available to the Islamic fund industry, making its growth potential hard to ignore for asset managers.

The global Islamic funds industry still only has about $50 billion of assets under management (AUM), compared with conventional global mutual funds with assets of $22 trillion, underlying the potential the industry has to grow.

"The wealth management business is going to grow faster than overall Islamic finance growth," said Shahzad Wairach, vice president of global wealth management at HSBC Amanah. "We could see 20 percent growth over the next three to five years."

But to reach that target, the industry has to offer more diverse products and asset classes while overcoming misperceptions that Islamic funds are plagued by poor returns and exorbitant fees.

There are signs that investment managers are slowly moving to tap demand for Islamic products. Qatar First Investment Bank and Gulfmena Alternative Investments last week unveiled plans for a sharia-compliant asset management firm.

"The Islamic wealth management industry has to grow because it works," said Jahangir Aka, senior executive officer at wealth manager SEI.

"It is a viable investment approach that just happens to be sharia compliant and emotionally acceptable to Muslims."

The funds industry has largely focused on institutional investors rather than the increasingly affluent Muslim population in the region. According to consultancy Deloitte, $600 billion of the $1 trillion Islamic finance industry comes from the Gulf Cooperation Council (GCC) region, which has more potential for retail growth because of its affluence.


Islamic investment products are commonly perceived to underperform conventional asset classes due to restrictions on investment avenues and the overall conservatism of portfolios.

But the MSCI World Islamic Index has managed to outperform the conventional MSCI World Index over the last 13 quarters due to its focus on low-debt companies and non-financial stocks.

Average management fees have dropped sharply to about 1.15 percent.

70 percent of Islamic funds holding less than $100 million in assets as of the first quarter of 2010, according to Ernst & Young.


For investment in Islamic unit trusts (mutual funds) and other Islamic products in Malaysia, pls contact:

Ahmad Sanusi Husain, Independent Consultant, CIMB Wealth Advisors (CWA) - Islamic Funds
UOA Tower, Jalan Pinang, Kuala Lumpur, Malaysia:
Mobile no: +6019-234 8786, +6012-610 0526

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