Islamic private equity has been a rip-off over the last 10 years, where: "much of it was fraudulent, or nearly so. Investors were duped. A lot of money was lost on one side, but gained unscrupulously on the other," so says John Sandwick, a Geneva-based Islamic wealth and asset management specialist.
Sandwick [pictured] thinks that the growth of Islamic private equity to a $50bn industry by the end of 2007 was a product of abundant cheap credit thrown around in the run up to the global financial collapse which led to the formation of a vast bubble.
He said: "This bubble collapsed. There is going to be a lot of pain for a long time. During this painful period investors are gun shy. They cannot tolerate more high-risk investing."
In conventional finance private equity accounts for less than 3% of assets under management, whereas mutual funds make up 35%. In the Islamic finance industry Shari'ah compliant mutual funds are also worth some $50bn and Sandwick asks if private equity is a small niche category in the conventional world, why did it take an unprecedented position in the Islamic banking world?
He thinks it was part of a general public madness that pervaded at the time with the growth and development of the asset class being unsustainable.
He concluded: "I am praying Islamic private equity does not return any time soon or at least never returns to its over-hyped, over-glorified position of the past. It is a marginal area of banking and should remain there."
© The Islamic Globe 2011
