Demand For Islamic Hedge Funds On The Rise

Date: Friday, February 13, 2009
Author: Zawya.com

Regional high net worth and institutional investors are increasingly seeking safer and more acceptable ways to invest their capital. Islamic finance may be an attractive option say experts who are convening in Dubai later next month to discuss innovations in the hedge fund industry, particularly as they relate to the Middle East.

Hedge Funds World Middle East, a conference celebrating its 10^th anniversary in 2009, will highlight strategic Shariah-compliant initiatives and instruments by leading regional and global institutions this year. Islamic hedge funds, for example, unlike their conventional counterparts, are fully transparent (per Shariah guidelines) and allow access to Shariah scholars who monitor them to ensure they comply with Shariah law.

Already established as the Middle East's largest investment event, the conference, which is organized by Terrapinn, attracts delegates and speakers from all over the region and the world. This year, a large number of hedge funds, local investors and international pension funds and endowments will be present. Symon Rubens, Managing Director of Terrapinn in the Middle East says: "Many delegates now see this event as their preferred hedge fund event globally - attracting the most investors, the biggest names and in the best location. This year, more than twenty end-investors, both international and local, are featured on the speaking program."

Ahmed Bin Sulayem, Executive Chairman of Dubai Multi-Commodities CentreDubai Multi-Commodities Centre Authority (DMCCA,) will deliver a keynote address at the event, highlighting the efforts of DMCCA and Shariah Capital, a U.S. company listed on the Alternative Investment Market of the London Stock Exchange that creates and customizes Shariah compliant products and platforms, to introduce Islamic hedge funds to the market. DMCCA and Shariah Capital have launched a joint venture company called Dubai Shariah Asset Management (or "DSAM") to develop and distribute commodity-linked, Shariah compliant investment products. Last year, DMCCA seeded four commodity-based Islamic hedge funds with US$ 50 million each, a total investment of US$ 200 million, for a platform of Shariah compliant, single strategy hedge funds, as well as an equally-weighted fund-of-funds comprised of the four strategies. The four hedge funds use a proprietary Shariah screening system and an arboon-based short-sale solution developed by Shariah Capital. The prime broker and custodian for the funds is Barclays Capital, a unit of Barclays PLC.

The conference will bring together a host of high profile speakers and participants from the US, UK, Kuwait, UAE, Qatar, Saudi Arabia and Switzerland to discuss opportunities in the hedge fund sector. These include Ahmed Bin Sulayem, John Paulson, President, Paulson & Co. Inc. (USA.), Eric Meyer, Chairman & CEO of Shariah Capital and Board Member of DSAM and Frank Gerhard, Director at Barclays Capital in the UK.

Ahmed Bin Sulayem commented: "There definitely is market appetite for Islamic hedge funds. However, very few players are able to provide high-quality Shariah compliant managers and strategies that can deliver absolute returns to institutional investors and family offices. Some of these investors are already exposed to conventional hedge funds but may have a preference for funds that are Shariah compliant."

It is reported that the appetite of institutional investors for innovative, specialized hedge funds remained intact as 2008 drew to a close. In a study conducted in November 2008 by SEI and Greenwich Associates, about 85 per cent of institutions surveyed said they planned to maintain or increase their allocations to hedge funds, with only a quarter saying they had liquidated some investments or planned to do so.

At the same time, the Islamic Finance industry has grown steadily at 15% a year. In a matter of years, it is expected to reach US$ 1 trillion, despite the global economic recession and regional slowdown. According to the Dubai International Financial Centre, current market penetration of Islamic products amounts to an estimated 20% of the Arab population. This figure is expected to rise dramatically. It is expected that within the next decade, 50-60% of the total savings of the world's 1.2 billion Muslims will be in the form of Shariah compliant products.

"The platform of Shariah-compliant hedge funds available to investors today is excellent," says Eric Meyer, a pioneer in Islamic Finance who is a featured speaker at the event. "The liquidity-rich Gulf and Middle East regions are still looking for investment opportunities that reconcile modern investment strategies with Shariah Law. Now they have a solution either the individual DSAM Kauthar funds or their composite fund-of-funds, the DSAM Kauthar Commodity Fund," he adds.