Saudi KBW Group launches Islamic fund

Crestmount Fund I, closed-ended Shari’ah-compliant real estate private equity fund, Cayman Islands entity.

Saudi riyal currency.

Saudi riyal currency.

Reuters/Fahad Shadeed

In an exclusive interview, HRH Prince Khaled bin Alwaleed bin Talal reveals the full story behind his investment firm's jump into the Shari'ah space

Tell me about the history of KBW Investments.

I founded KBW Investments four years ago with the idea that it would act as the vehicle for most of my corporate investment activities, and that it would later act as the holding company or ‘parent’ company for entities that would work well in the Group's overall portfolio. KBW’s Group CEO Ahmed Alkhoshaibi proposed that we begin with investing in manufacturing via acquisition, and from there we began developing the schema that the Group follows until the present day. In mid-January we launched our newest company, ARADA, in partnership with Basma Group and we’ll be announcing ARADA’s first development project shortly. Outside of KBW Investments, I have my private investment activities in an angel capacity, and I’ve also solely founded KBW Ventures. 

When did you start considering getting into the Shari’ah-compliant investment space? What interested you?

Crestmount Capital is KBW’s first movement in the Shari’ah-compliant investment space. I find the opportunities in Islamic finance interesting—there’s a lot to discover both professionally and personally. On a professional front, I found the fairness of it most appealing. The extensive work that we’ve done in preparation of launching Crestmount Capital with Amanie Advisors has been really educational. Everything from the issuances of Fatwas for funds and other Islamic financial instruments, to the process behind Shari’ah-compliance assessment to the recommendations on best practices—it was an exciting arena for me to be in as there was a learning curve in terms of processes and procedures; it was pretty much a new frontier altogether for our business. From a personal perspective, it’s also about meeting new investors who I previously had no interaction with in a business respect. Even the entities that we went with to help us hone our specialisation in best-in-class Islamic finance were different than who we typically work with. Crestmount Capital’s development, launch and successful execution served to really expand my knowledge base, and at the same time really hooked me on Islamic investing's potential.

How did you settle upon this particular plan?

We decided to move forward on Islamic financial instruments when formulating plans on how best to diversify the KBW Investments portfolio. We already work in what is considered the more ‘mainstream’ investment arenas, so this gave us an additional value-added facet while providing a fresh avenue for overall company growth, diversification, and expansion. We decided on Crestmount Capital as the vehicle for our new Shari’ah-compliant investment fund so that it could operate as a standalone entity with autonomy, and simultaneously be fully in-line with the specific principles and needs of Islamic finance. Crestmount’s Shari’ah Supervisory Board, all of whom are renowned scholars across various disciplines in Islamic economics and finance, are the widely-acknowledged architects of the actual Islamic financial structures. We feel that having such strong figures vetting Crestmount operations and instruments is key, and to successfully go that route we needed to have a full enterprise dedicated solely to it.

Tell me more about PietyTHP Developments.

PietyTHP Developments is based in Australia, and will be delivering the projects that Crestmount Fund I will be investing in. The projects targeted for the capital are new high density, residential developments developed by Piety Investments, the largest Shari’ah compliant developer outside of the GCC and Asia. PietyTHP Developments is a joint venture between Piety and the property arm of Lembaga Tabung Haji of Malaysia. Lembaga Tabung Haji, Malaysia’s largest Islamic fund manager, has more than 50 years of experience in deposits, Hajj services and operations,

and investments.

What work went into setting it up?

To launch Crestmount, first we had to justify launching Crestmount. That meant some heavy research into whether or not it was viable, sustainable, and worthwhile. After the initial research was undertaken and that we were sure we could clear the barriers to entry and add value, we became confident market-wise. We then began to look into respective fund structures and what avenues best suited our existing knowledge base and access levels. Once we had a working model, we went into deep legal and financial preparations, and sought out Amanie Advisors based on their extensive industry recommendations and demonstrated delivery with both theoretical and practical experience. 

Tell me more about the Fund itself. How is it structured, and what kind of returns can investors expect?

Crestmount Fund I, a closed-ended Shari’ah-compliant real estate private equity fund, is structured as a Cayman Islands entity. It will fund five identified under-development residential projects in Sydney, Australia, through Shari’ah-compliant commodity Murabahah agreements. Crestmount Fund I is expected to generate a return ranging between 15-20 per cent per annum. In terms of the company parameters, and the Fund itself, every base was analysed to ensure that we had our investors’ best interests at the forefront of our value proposition. We’ve engaged KPMG as Crestmount’s auditors, given their respected stance in the Islamic financial marketplace, to ensure full transparency and detailed externally-generated overviews. Out of the ‘Big Four’, we felt that KPMG would be the most suitable for our present needs, and that they would see to Crestmount’s business meticulously. Legally, we’ve taken extra steps by bringing King & Spalding on board to assist us with the overall structure—this was one of the best decisions we’ve made thus far as it really helped us hone our position. We also engaged an additional firm, King & Wood Mallesons, to help us shape and define our structure as a best-fit scenario within Australian legal framework as Fund I’s capital is deployed in that market. We’ve opted for heavy-hitters across the board for Crestmount, as we’re in this for the long-term. 

How has the market responded to the fund thus far?

We were very comfortable going to market and privately circulating Crestmount Fund I. The response was a very quick and simple confirmation of our initial findings: there is interest in Islamic investment instruments so long as the Fund itself looks to deliver on its promises and at an advantageous rate within a better-than-average turnaround time. We’re very happy with this early success, but we’ll be taking our time before we take on a second leg—we won’t be rushing. With Fund I, we were able to deploy the capital into a project that was secure and promised good results that more than satisfied our investors. 

Are you certain to have more Islamic activities in the future? What ‘consistent milestones’ are you aiming to hit?

We launched a full company dedicated to pursuing our ambitions in the Islamic finance arena. Crestmount Fund I was a great experience, and gives us a good platform to build on. We’d like to continue to source the right opportunities matched with the right investors.  

What did you learn about the Islamic investment space through the process of setting up this fund?

A salient takeaway is that not only is the appetite for Islamic investment opportunities strong, it’s much more pervasive than we first thought. Initially, the idea was floated that it was a ‘niche’, which it isn’t. I think in investment circles an echo chamber exists—the type of investors you end up interacting with are based on the types of investments you make. So, if you’re into a certain type of fund or a certain investment class, you typically meet those who echo your existing interests. Through launching Crestmount, and subsequently Crestmount Fund I, we were exposed to a different set of market players and market influencers. We learned a great deal about Islamic financial hubs, and when and how the deal flow itself is actually occurring.  

What have you found to be the main benefits of the Shari’ah-compliant structure?

The main benefit to participating in the Islamic financial marketplace is the fairness and ethics involved, in my opinion. By not investing in prohibited areas, you aren’t contributing to potential pitfalls in society—that’s always a plus. Is it a benefit? Sure, you’re able to put your money into businesses that still turn a profit while remaining aligned with your own personal moral compass; that, to me, is a win-win situation from both commercial and ethical perspectives depending on what value system you choose to adopt. 

What do you feel the Islamic finance space most needs to improve upon in the future?

While standards and guidelines do exist for Islamic financial instruments, presently some aspects are positioned more as recommendations rather than absolutely binding. It’s true that certain parameters must be followed, but others are suggested as a best practise scenario. One codified source of requirements and recommendations that would act as the formal global ‘rule book’, so to speak, would be optimal. This, developed by a global governing body incorporating the opinions of the established Islamic economics and finance experts, could also perhaps archive the respective Fatwas in the financial space. It would be really useful and help to promote more integration, in my opinion. Last year, the UAE announced the launch of the country’s Shari’ah Authority. We’ve been told that UAE’s governing Shari’ah body would likely be similar to the Malaysian model, functioning primarily for standardisation of Shari’ah application purposes in the country and potentially also see to dispute resolution. The Malaysian Central Bank, BNM, introduced the Shari’ah Governance Framework in 2010 which governs Islamic financial affairs only for Islamic banking institutions, not funds or capital market products per se. One overall entity, again, based on a global consensus, issuing and standardising Islamic financial instruments and acting as the main reference and go-to point, would be in everyone’s best interests. I would really like to see that happen.

 How great are the opportunities for Islamic finance and investment, in your view?

In my opinion, the activity is really very attractive and the potential for growth is limitless. We are committed to Crestmount for the long-term, and we have gone the extra mile to work with the strongest and most relevant entities across industries to ensure that it made a surefooted market entry, together with a stable future roadmap. If we thought there was a ceiling to where Crestmount could go and what it could do, we wouldn’t have created a standalone company with its own structure and resources. 

© Islamic Business and Finance 2017

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