Mon, May 21, 2018
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Opalesque Islamic Finance Intelligence

Industry Snapshot: Islamic Fund of Funds, a Rare Breed Bernardo Vizcaino, CAIA

Friday, July 03, 2009

Industry Tables

Islamic fund of funds, A Rare Breed
By Bernardo Vizcaino, CAIA

Within the wide range of Shariah compliant products, the multi-manager or fund of funds concept has taken some time to establish itself. Diversification and access to quality mandates are often-quoted advantages of multi-manager providers (although it is increasingly clear that providing due diligence scrutiny is at the top of client’s requirements as well). This aspect is exacerbated due to the limited availability of track records, which makes manager scrutiny even more vital. Nonetheless, both of the core Islamic finance markets (GCC and Southeast Asia) provide evidence that the classic fund of funds programme has yet to arrive in full swing.

Take for instance Saudi Arabia, where multi-managers have been a hallmark of product offerings, yet it is quite telling that they are predominantly referred to as portfolios rather than anything else. The use of this term (as opposed to a straight fund of funds) reflects product shortage and/or lack of product awareness. The head of mutual funds for one of the largest Islamic banks in the Kingdom once referred to this challenge as the “constrained universe.” Indeed, fund sponsors have seen their multi-manager platforms migrate towards the realm of single-managers (i.e. incorporating direct/active allocation of a portion of their assets). As a direct consequence of this flexibility, investments often include illiquid allocations (i.e. real estate) or direct trading in specific instruments (i.e. sukuk). Thus to successfully manage these portfolios a rather wide skill set is required – something that is very rare to find and difficult to harmonize.

The wholesale market in Malaysia proves to hold idiosyncrasies of its own. While wholesale products (across the various providers) avoid pockets of direct allocation, they more often than not package their in-house single-managers into their multi-manager offerings. This “bad habit” is borne out of a marketing-oriented rationale, yet it can introduce a moral hazard which ultimately fails to deliver value to the end consumer. It would be difficult to substantiate how the entire range of single manager products from a specific institution can all be considered as the best choices for inclusion into a multi-manager fund. The need for independent and un-biased asset allocation decisions is evident, yet elusive. A natural counterargument would be that these single-manager products are being bundled together for easy digestion by investors, although the secondary layer of fees being introduced is hardly justifiable (as opposed to well-documented benefits that arrive from a pure third-party fund of fund manager).

The fund of fund as a pure-play is thus rare but not impossible to find. A sample of these is included in the adjacent table, and while these are few and far in between they prove the concept is taking root across the marketplace. It seems the constrained universe is being finally tamed.

Sample Fund of Islamic Funds

Fund Manager Domicile Launch Date Mgmt Fee Perf Fee
Al Dar Asset Management Kuwait June 2005 1% NA
Global Investment House Bahrain July 2007 1% 20%
Rasmala Investments Cayman Islands January 2007 1% - 1.5% NA%



Article Link

<< Go Back to Archive

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. News Briefs - Warren Buffett: Target date funds aren't the way to go, Cambridge Analytica could be reborn under a different name[more]

    Warren Buffett: Target date funds aren't the way to go Planning for retirement can be complicated and stressful. This is why target date funds - funds that are managed based on when you expect to retire - are so attractive. Over time, the balance of stocks, bonds and cash evolve automati

  2. Investing - Hedge funds hike Smurfit Kappa positions amid takeover deal hopes, Hedge fund IBV Capital digs deep to unlock long-term value in a competitive market, Eisman of 'The Big Short' fame recommends shorting Deutsche Bank[more]

    Hedge funds hike Smurfit Kappa positions amid takeover deal hopes From Irishtimes.com: Two US hedge funds, Davidson Kempner and York Capital, have accumulated a combined 4.74 per cent interest in cardboard box maker Smurfit Kappa using financial derivatives. It comes as many investors cl

  3. Foundations of hedge fund managers gave big to controversial donor-advised funds[more]

    In the world of philanthropy and tax-deductible charitable giving, the explosion of donor-advised funds has touched off intense debate. Now, there is evidence that the DAF boom is being further fuelled by hedge fund foundation money. Four of the top five foundations that gave the most to large do

  4. Study: For hedge funds, smaller is better[more]

    From Institutionalinvestor.com: The smaller the hedge fund is, the better its performance is likely to be, according to a new study. The study - "Size, Age, and the Performance Life Cycle of Hedge Funds," released April 26 - sought to determine whether a hedge fund's size and age had any effect on i

  5. Hedge fund returns rose in April for first gain since January[more]

    From Bloomberg.com: Bloomberg Hedge Fund Database shows returns flat this year - Currency strategies had the biggest monthly gain at 13% Hedge fund returns increased 0.78 percent in April, reversing two consecutive monthly declines. The swing of 134 basis points was driven by gains in all seven