Tag Archives: Shariah

SEDCO’s Shariah funds offer responsible investing

Financial Times: SEDCO’s Shariah funds offer responsible investing


Despite myriad column inches, and the urgings of governments from east to west, the Islamic fund industry remains something of a pygmy.

The markets for Islamic banking, insurance and sukuk bonds have all seen solid growth in recent years, but the sharia-compliant fund industry remains tiny, with Ernst & Young estimating it at $58bn, as of 2010, a fraction of the $300bn sukuk sector.

The sharia fund market, which is heavily skewed towards equities, was not helped by its emergence coinciding with the global financial crisis, damaging confidence at an inopportune time.

However, to Hasan Al Jabri, chief executive of Saudi Arabia’s Sedco Capital, the resultant “chronic” lack of high-quality sharia-compliant products represents both a challenge and an opportunity.

“Islamic investors have traditionally found it difficult to access the same investment opportunities as non-Islamic investors. The growth of sharia-compliant investment has been stunted by a reputation for a lack of diversity, poor performance and high fees,” says Mr Al Jabri, who also cites the lack of “credibility” of houses that sell both sharia and non-sharia products and a view in some quarters that sharia funds are a relatively unimportant niche.

“For some of the western banks it’s not really meaningful, it’s not worth the attention. When we grow to $5bn, it’s very meaningful for us,” he says.

Since May 2012, Sedco Capital has “addressed these challenges head on”, building what is believed to be the largest sharia-compliant fund platform in Luxembourg. Its five vehicles, covering passive US equities, fundamental US equities, global dividend stocks, emerging market equities and global real estate investment trusts, hold $900m of assets.

Although this number is small in the great scheme of things, Mr Al Jabri points out that Sedco’s sharia-compliant US Equities Passive fund, with assets of $360m, dwarfs the $20m held by the iShares MSCI USA Islamic exchange traded fund, and has lower fees, 40 basis points against 50bp.

“I’m not aware of any single entity that has the range of sharia products we do. Certainly in Luxembourg we are the largest platform and the most diverse,” says Mr Al Jabri.

Jeddah-based Sedco is currently launching two more vehicles with one, the Global Market Sentiment fund, designed to switch between equities and Islamic time deposits, or murabaha, as the manager sees fit.

“We are very excited about it,” says Mr Al Jabri. “It’s a tactical fund. The economic cycles have become shorter, the markets move very fast. We see a bull market then a bear market then a bull market, it’s happening every two to three months.

“Therefore we need a tactical component because we cannot short equities in sharia-compliant funds. It will look at the fundamentals of the market. Where the market is unduly pessimistic, we go into the market. When it’s too optimistic, we put it in murabaha. We are telling the manager, when it doesn’t make sense, have the courage to pull the money out.”

The Market Sentiment fund is being launched alongside a fixed income equivalent, and each vehicle has been seeded with $150m from Sedco’s wealth management clients.

The plan is to launch around eight to 10 funds during 2013, raising assets on the Luxembourg platform to $1.6bn. Asia-Pacific and emerging market equity funds are on the drawing board, alongside a US real estate fund and private equity funds covering the US and Brazil.

All the funds are outsourced to external managers with, for instance, State Street Global Advisors managing the US Equities Passive fund and Credit Suisse contracted to run the two latest offerings.

Sedco has a series of Saudi feeder funds to channel money from its home market into the Luxembourg platform, but Mr Al Jabri says the bulk of the money is coming from elsewhere, a trend he expects to become more pronounced, even though Sedco is targeting only “sophisticated” investors.

“Several private banks have approached us. They want to do their due diligence and then they will start very actively marketing it to their own private clients,” says Mr Al Jabri, who says Sedco has also had “preliminary discussions” with non-Muslim investors.

Indeed, Mr Al Jabri believes sharia investment could find favour with a growing number of western investors.

“We don’t do alcohol, arms, the financial industry [because of leverage], pork,” he says. “We feel strongly about responsible investing. I deserve to make money only when I’m creating value for the economy, I’m helping to create the jobs. This is a very important factor for us and is something that the world really needs.”

This approach is perhaps more noticeable in Sedco’s private equity operations, where it already has some non-Muslim investors.

The company started investing in both property and private equity in the 1970s, when it was formed as the family office of Sheikh Salem Bin Mahfouz, the founder of Saudi Arabia’s National Commercial Bank.

However, restrictions on interest payments and debt mandated by a sharia-compliant approach means Sedco cannot participate in leveraged or management buyouts, although it is happy to invest in indebted companies as long as their debt is no more than a third of their market capitalisation.

This approach forces Sedco to concentrate on targeting growth companies via venture capital, something a number of established private equity groups are happy to accommodate by setting up parallel sharia-compliant funds alongside their mainstream offerings.

“The portfolio will be 20-30 per cent different [from the mainstream fund],” says Mr Al Jabri, who says this approach has benefited investors in both private and public equity markets.

“We were out of financial institutions and insurance companies because their leverage was too high. That has helped our performance in the past few years, although it can work against us. In 2012 we missed out on opportunities.

“Excessive leverage can drive companies into difficulties. I think that’s the main difference; when markets go down they are the most drastically affected.”

Source: http://www.ft.com/intl/cms/s/0/aab6dd18-79e1-11e2-9dad-00144feabdc0.html

Citibank Launches Sharia Compliant Working Capital Products

Citibank Launches Sharia Compliant Working Capital Products

As part of its Middle East strategy and to meet an outstanding client requirement, Citi today unveiled a suite of Shari’a-compliant banking products designed to meet the working capital needs of UAE-based corporate clients.

Offered by Citi Global Transaction Services, these solutions include Shari’a compliant Cash Management Products (Current Account/Savings Account/Term Investment), and Trade Products (Import Finance/Guarantees/Trade Services).

This family of products has been tailored to a growing client base of corporations opting for a competitive Shari’a-compliant alternative to conventional products, hence complementing Citi’s full spectrum of Islamic Investment and financing solutions. They also come at the heels of the recently launched Shari’a-compliant escrow services based on Murabaha structure.

Mohammed Al-Shroogi, Managing Director for the Middle East, Chief Executive Officer for Citi in the UAE, and founding Chairman of the Citi Islamic Investment Bank, said: “Today we move a step forward towards fulfilling our clients’ all-round banking needs by offering Treasury and Trade Shari’a-compliant Products suite. We are proud to be a driving force behind the development of Islamic banking methods that meet the needs of the diverse clientele in the UAE as well as worldwide.”

Samad Sirohey, Chief Executive Officer of Citi Islamic Investment Bank & Head of Global Islamic Banking, added: “The Citi Treasury and Trade Shari’a-compliant services are in line with Citi’s strategy to offer our clients Shari’a-compliant working capital products in the UAE to be later introduced to various other markets. Citi’s leadership in the domain of Shari’a-compliant finance and investment solutions is now enhanced by a strategic expansion across both product range and client base.“

Murali Subramanian, Head of Citi’s Global Transaction Services in the Middle East and North Africa, said: “Our award winning global platform and deep knowledge of UAE’s corporate culture are strongly embedded in the Treasury and Trade Shari’a-compliant Product suite. These services will be backed by a team of seasoned professionals who are present on the ground to provide instant customer support and facilitate service provision.”

Citi’s Global Islamic Banking operations were established in 1981 in London, and in 1996 Citi became the first international financial institution to set up a separately capitalized Islamic Bank – the Citi Islamic Investment Bank.

Since inception, Citi Islamic has played a pioneering and leading role in the development of Islamic Finance globally, having successfully arranged several billion dollars of Islamic transactions for issuers in the Middle East, Asia, Europe and Latin America. This includes the origination, structuring and distribution of numerous landmark Sukuk, syndications, project financings, Islamic advisory and investment products. Today, the bank is ranked as the leading bookrunner of international Islamic Finance transactions.

Islamic Banking Industry Set to Rise 20%

Islamic Banking Industry Set to Rise 20%

The Islamic banking industry is set to grow 20 percent annually in the year 2008 and beyond posing many challenges to the policy makers and regulators that how to create a sustainable Islamic financial industry.

The very nature of cross-border capital flows together with the phenomenal advances in information technology and pressures on financial market liberalization has meant that globalization has inevitably impacted on the financial services sector per se.

IFSB, the transnational organization whose mandate is to set prudential and supervisory standards for the global Islamic finance sector, is organizing its 5th annual summit on May 13-14, 2008 in Amman, Jordan on the theme “Financial Globalization and Islamic Financial Services“.

The impressive year-on-year growth of Islamic finance augurs well for the future viability of the sector. Despite the absence of empirical research on market size, the sector is estimated by some to grow at a robust 20 percent per annum over the next few years.

With financial globalization, whether in the conventional or Islamic financial sectors, comes innovation and financial engineering. The pace of innovation is so rapid.

that very often regulatory authorities find it difficult to keep up with new developments in products and the concomitant legislation, technology and market trends.

With more and more IFSB member countries now acceding to the World Trade Organization (WTO) provisions, including those relating to financial market liberalization, and more cross-border opportunities inevitably emerging, it is important for regulators, market players and other interested parties to familiarize themselves with how financial globalization is impacting on Islamic financial services.

The IFSB summit will discuss pertinent topics which include globalization of Islamic financial services: opportunities and challenges. These include supply and demand trends for Islamic finance; growth in different Industry segments; potential returns to innovation and specialized technology; and issue relating to legal infrastructures, regulation and human resources, cross-border capital flows, including the size and patterns of such flows, and the role of Islamic capital markets in facilitating such flows.

Key issues in regional integration of Islamic financial markets, including Islamic capital markets promotion and the catalytic role of governments.

The other areas include standardization, harmonization, mutual recognition and exchange market cooperation to develop national Islamic capital markets and their regional and global integration. These would include Shariah rulings; contracts and documentation; and exchange market alliances, and the way forward in financial globalization and Islamic financial services. These would include the development of national Islamic financial markets and the priorities for standard-setting organizations.

The Summit has important implications in other aspects as well.

International Monetary Fund studies in the past have shown that Islamic finance, by its very nature, may be in a stronger position to absorb the shocks of the global financial system.

At a time when the conventional banking sector is facing a serious credit crunch following investments in sub-prime US housing mortgage loans, which have since collapsed, there may be even more migration to Islamic financial services in certain countries, and more lessons to be learnt for both financial systems.