Sharia hedge fund delayed by Lehman fall

Date: Friday, September 19, 2008
Author: Reuters

Amiri Capital, the Olivant-backed Islamic asset management company, said the collapse of U.S. bank Lehman Brothers had forced it to delay its planned sharia fund of hedge funds.

Lehman was lined up to act as prime broker on the fund - the first of its type.

Richard Ellis, co-founder of Amiri Capital told Thomson Investment Management News in an e-mail that the fund of funds launch "will definitely go ahead" once new partners have been found. He could give no time frame for the start of the fund which was originally slated for earlier in the summer.

Amiri wants a prime broker which will implement the same structure agreed with Lehman as a means to get round sharia restrictions on short-selling.

Islamic law bans shorting as it is deemed to involve the sale of something the fund manager does not own. Amiri and Lehman had devised a system of 'promise notes' whereby the U.S. investment bank committed to buy a stock from the constituent funds at a pre-determined price if its value went down.

The system was approved by Amiri's sharia scholars and had taken many months to develop, Ellis told Thomson IM News in a an interview in May.

The fund of hedge funds, Amiri Equity Alternative Strategies Fund AEAS.L, is domiciled in the Cayman Islands and will be co-managed with Coronation International.

Amiri chief operating officer Hamel Shah said on Wednesday the company was considering two or three potential prime brokers. He said it was too early to say when trading might start.

As well as avoiding mainstream shorting techniques, sharia investments must exclude certain types of derivatives, as well as companies charging interest. Additionally, they cannot invest in highly leveraged firms or companies directly or indirectly involved with gambling, alcohol, pornography and pork meat production.

The sharia finance market as a whole is worth about $750 billion in assets, estimates Mathieu Vasseux, of strategy consultants Oliver Wyman.