Sat, Oct 21, 2017
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. Regulatory - David Stockman: Trump tax reform overhaul is a pipe dream, stocks are heading for 40-70% plunge, Carried interest tax: How much does it matter?, Odey sees 'terrifying' mix in MiFID, tapering, asset values, Hedge funds come together to share cost of MiFID and research, SEC turns up the heat on U.S. investment advisers, India's Sebi asks hedge funds to report investments in commodity derivatives[more]

    David Stockman: Trump tax reform overhaul is a pipe dream, stocks are heading for 40-70% plunge From CNBC.com: David Stockman is warning about the Trump administration's tax overhaul plan, Federal Reserve policy, saying they could play into a severe stock market sell-off. Stockman, the R

  2. North America - Puerto Rico rejects loan offers, accusing hedge funds of trying to profit off hurricanes[more]

    From TheIintercept.com: Puerto Rico has rejected a bondholder group's offer to issue the territory additional debt as a response to the devastation of Hurricane Maria. Officials with Puerto Rico's Fiscal Agency and Financial Advisory Authority said the offer was "not viable" and would harm the islan

  3. Investing - WPP targeted by short-selling American hedge fund, Sun co-founder sells secretive hedge fund on big chip trade[more]

    WPP targeted by short-selling American hedge fund From Cityam.com: An American hedge fund has mounted a bet against WPP, the world's largest advertising group, with a trade worth almost £90m. Lone Pine Capital has built a short position worth 0.51 per cent of the FTSE 100 company,

  4. Hedge funds up as industry adjusts to rising rates[more]

    Komfie Manalo, Opalesque Asia: Hedge funds have reshuffled their portfolio after nearly four weeks of rising rates as the Lyxor Hedge Fund Index was up +0.2% from 19 September to 26 (+1.1% YTD), fuelled by strong results of global macro funds, Lyxor Ass

  5. Manager Profile - How the world's hedge fund king used 'idea meritocracy' to become a billionaire[more]

    From Forbes.com: In 1982, Ray Dalio made what he calls the biggest mistake of his life. He made a bet that there would be an economic collapse stemming from a debt crisis. And he was wrong. He lost money. He lost his client's money. He had to let people go from his firm and borrow money from his dad