Dubai; Asset management, one of the main pillars of the fast growing $2 trillion (Dh7.34 trillion) Islamic finance industry, is gaining interest among investors as an alternative investment avenue, according to bankers and investment managers.
During the last 10 years, Islamic asset management has evolved significantly and witnessed a number of developments. Sukuk remains the most recognised Islamic instrument and forms a part of a majority of Sharia-compliant funds.
At a recent conference on the future of Sharia-compliant asset management, organised at the Emirates Institute for Banking & Financial Studies (EIBFS), senior bankers and financial experts from the industry endorsed their support for the industry.
Experts acknowledge that there is a wide and increasing gap between demand and supply of Islamic assets, and specifically in Islamic funds the demand-supply gap is expected to be about $105 billion (Dh385.6 billion) by 2019. The overall trend for the industry remains positive with the Assets under Management (AUM) of total global Islamic funds, at the end of 2014, growing 5.3 per cent from the previous year.
During the same period, Islamic money market funds performed the best as customers moved to cash amid uncertainties in the global economy.
“After the global financial crisis, while the investors’ interest in Islamic assets has grown, Islamic asset management product offerings are still limited, leading to the demand-supply gap,” said Dr Sabahuddin Azmi, academic coordinator for the Islamic Banking programme, at EIBFS. “Islamic wealth management avenues satisfy less than half of outstanding demand. There is need to develop more institutions capable of organising new issues,”
Most Islamic asset managers tend to focus on public and private equity and real estate. While there are challenges, there are reasons to be optimistic about Islamic asset management according to Abdul Kadir Hussain, CEO of Mashreq Capital. Some of the challenges for Islamic asset managers include: the lack of proper retirement saving schemes; the absence of life insurance means lack of demand for certain types of investment products; the low liquidity of certain products; poor investor awareness and lack of standardisation.
However, there are positive signs that point to the maturing of the space, Hussain added.
“New non-Islamic issuers are accessing the sukuk market given the high demand for the asset and for diversification of their portfolios. Almost every asset class now has Islamic products,” he said.
Sukuk/fixed income is becoming a major asset class. Dow Jones and S&P have global Sharia Equity indices and ETFs built around these indices. Profit rate swaps are allowed for managing rate risk and finally, local currency denominated Islamic instruments mean that investors can also benefit from currency diversification.
Legal and regulatory issues related to asset management in Islamic Finance are becoming a challenge for investors. “Regulatory and compliance issues in different jurisdictions and in particular... the compliance of Sharia in Islamic fund structuring poses a big challenge. There is a need to adopt appropriate substantive laws and Sharia structures. There is also a need to adopt efficient Islamic financing techniques and Sharia-screening parameter,” said Sohail Zubairi, CEO of Dar Al Sharia Legal & Financial Consultancy.
