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Deutsche Bank to launch sharia hedge fund platform

Date: Wednesday, September 24, 2008
Author: Cecilla Valente, Reuters

LONDON, Sept 23 (Reuters) - Deutsche Bank AG's prime brokerage business is preparing to launch a sharia-compliant hedge fund platform within the next month, as part of its Middle East expansion plans, a senior official said.
Deutsche Bank will expand an existing service on a selective basis, regional head for Middle East Structuring Geert Bossuyt told Reuters, and the platform -- or range of financial products -- will offer techniques for hedge funds to adjust to Islamic investment rules.
"It is a bit like the case of the chicken and the egg, you will never have demand if there is no offer. So Deutsche Bank, and others, offer product," he said.
Deutsche will target existing hedge funds who want to run sharia strategies alongside their ongoing investment activities.
It will follow the launch of Barclays Capital's Al Safi sharia-complaint platform in June and the launch last year of a similar product by Newedge, the broker platform joint venture of Credit Agricole's Calyon and Societe Generale.
Sharia-compliant transactions demand transparency throughout the investment process.
Short selling is banned because it amounts to selling an asset not owned and risk management must accommodate the exclusion of certain types of derivatives because of their speculative nature. Bossuyt said the platform will offer "conceptual solutions" to hedge funds, advising on techniques to replicate traditional shorting, as well as screening of underlying equity and derivative transactions. The service has been approved by the sharia board of investment company Dar Al Istithmar, which is 55 percent owned by the German financial group. The Islamic hedge fund industry is still at least two years away from reaching the tipping point where the product offering is large and sophisticated enough to make costs and returns very similar to its mainstream counterpart, Bossuyt said. "My estimate of the immediate flow is that it is not going to be great at the beginning. We are in a learning curve phase," he said. (Editing by Joel Dimmock and Simon Jessop)