Kuala Lumpur: Franklin Templeton Investments is starting its first Islamic funds, following companies including BNP Paribas SA in tailoring products to win business in the Muslim world.
The world’s third-largest asset-management company will start three sukuk and stock investment vehicles in Luxembourg in the next few months, Sandeep Singh, its Malaysian country head, said in a July 24 interview in Kuala Lumpur. San Mateo, California-based Franklin Templeton, which had $707 billion of assets under management as of June 30, according to its corporate factsheet, already oversees around $700 million of Islamic assets in Malaysia, without having its own Shariah- compliant funds.
Switzerland’s Zurich Insurance Group Ltd. and Eastspring Investments, an Asian arm of London-based Prudential Plc, are also diversifying into an industry whose holdings are projected by the Islamic Financial Services Board to almost triple to $2.8 trillion by 2015. Worldwide sales of sukuk climbed 77 per cent to $28.3 billion in 2012 as governments from Saudi Arabia to Indonesia increased spending to support economic growth.
“More non-Islamic players are coming in because there is an interest to tap the growing amount of Islamic wealth,” Abas A. Jalil, chief executive officer of Amanah Capital Group Ltd., a consultancy company in Kuala Lumpur, said in an interview yesterday. “By having more Shariah-compliant fund managers, investors will have more options and access to other markets.”
London-based Aberdeen Asset Management Plc, Nomura Asset Management Co. in Tokyo, India’s Reliance Capital Asset Management Ltd. and Paris-based BNP Paribas have all obtained Islamic fund management licenses in Malaysia. F&C Management Ltd., which is headquartered in London and oversees 100 billion pounds ($155 billion) of assets, started its first Shariah- compliant vehicle in March 2011.
The Islamic funds industry increased 3.4 per cent to $60 billion last year, with Europe’s sovereign debt crisis limiting growth, the London-based U.K. Islamic Finance Secretariat said in a March report. Malek Khodr Temsah, vice-president of treasury and investment at Manama, Bahrain-based Albaraka Banking Group BSC, said in a July 24 e-mail that he expected the industry will grow 7.5 per cent to 10 per cent in 2012.
Saudi Arabia has $572 billion of foreign-currency reserves, while Malaysia has $131 billion, according to data compiled by Bloomberg. Standard Chartered Plc and Kuala Lumpur-based CIMB Group Holdings Bhd. said this month they plan to roll out new private-banking services to target wealthy Muslims. The number of millionaires in the Middle East rose 2.7 per cent to 450,000 last year, according to a report released in June by Capgemini SA and RBC Wealth Management.
“The Middle East has always had good liquidity and capital needs to go somewhere, while these renowned institutions have the investment management skills,” Raj Mohamad, the Singapore- based managing director at consulting company Five Pillars Pte, said in an interview yesterday.
Islamic notes returned 5.9 per cent in 2012, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index, while debt in developing markets climbed 10 per cent, JPMorgan Chase & Co.’s EMBI Global Composite Index shows.
Average yields on global sukuk were little changed at 3.32 per cent yesterday and have declined 67 basis points this year, according to the HSBC/Nasdaq index. The difference between the average yield and the London interbank offered rate, or Libor, widened one basis point, or 0.01 per centage point, to 244 basis points.
Luxembourg Attracting Funds
Luxembourg, which provides tax exemptions for some Islamic funds and allows some to be sold across European Union countries, had $1.9 billion of Shariah-compliant assets under management at the end of last year and this will increase to $3 billion by the end of 2012, according to Luxembourg for Finance, a financial development agency.
“Luxembourg has been working actively to attract Shariah- compliant funds,” Jawad Ali, the Dubai-based deputy global head of the Islamic finance practice at law firm King & Spalding, said in a July 24 interview. “If market conditions are conducive in Europe, the annual growth in Luxembourg’s Islamic assets will be in the 20-30 per cent range.”
“The overall size of the industry is not that big but the growth rates are encouraging,” Templeton’s Singh said, declining to say how large the new funds would be. “It’s the long-term potential of having one-fifth of the population being Muslims around the world. It’s a longer-term vision rather than low-hanging fruit in the next two or three years.”