Islamic fund management industry still a fringe player

Islamic assets under management worldwide are likely to grow to $77 billion in 2019 from the current $60 billion but this remains only a tiny fraction of the $2 trillion global fund pool.

  

Tuesday, Oct 13, 2015

Dubai: Islamic assets under management worldwide are likely to grow to $77 billion in 2019 from the current $60 billion but this remains only a tiny fraction of the $2 trillion global fund pool.

“It’s a small number compared to the global size, and it demonstrates that it’s a boutique industry globally,” said Zak Hydari, chief executive officer of the European Islamic Investment Bank (EIIB)-Rasmala, adding “the aim is to take that $60 billion and grow that number.”

Most of the funds are sub-scale as the $60 billion worth of managed assets are divided into hundreds of funds, with the average size of each around $20-30 million.

“[It’s] most likely that [Islamic] funds [are] not profitable,” Hydari said, adding that “the key issue is how do we achieve scale and mass distribution for the funds that asset managers launch?”

According to EIIB-Rasmala report, traction has eluded the industry in its target market as total assets under management only represent a tiny proportion of global funds. Furthermore, the industry’s product offerings have been described as parochial, in addition to lacking in choice, diversification and quality.

Asset managers have been called on to innovate and usher in a diverse product range that gives investors plenty of options.

“If you are a global investor, you will struggle to invest in a Sharia-compliant manner, and even if there are good options, the problem is they are sub-scale,” Hydari said.

However, through collaboration, asset managers can save time, money and end up with more diversity in terms of their product mixes, the bank said.

Demand

Investors in the GCC are increasingly demanding more sophisticated Sharia-compliant savings, pension, insurance and mutual fund products.

“They wish to diversify into a range of alternative and fixed income products — such as sukuk, leasing, trade finance, securitisation and other asset-backed instruments — as well diversify geographically,” the EIIB-Rasmala report said.

The Islamic pension fund industry has a long way to catch up globally. There is now a critical need for the creation of a GCC-wide pension fund framework.

Globally, pension funds hold assets in excess of $27 trillion, with Islamic pension funds making up just 0.001 per cent of this figure — despite the fact that Muslims represent almost a quarter of the world’s population.

According to EIIB-Rasmala, diverting 20 per cent of investments from existing regional pension funds into Sharia-compliant funds would result in $36 billion being added to the global Islamic asset management industry. This would spur rapid innovation in terms of offerings and enable Dubai to capture the market and transform its Islamic finance industry.

By Siddesh Suresh ?Mayenkar Staff Reporter

Gulf News 2015. All rights reserved.