Tue, Aug 30, 2016
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. The Big Picture: Water is single largest environmental investment opportunity[more]

    Benedicte Gravrand, Opalesque Geneva: Water, the world’s most precious and undervalued commodity, is set to lead the socially and environmentally responsible investment themes. This is according to specialist fund manager Thomas Schumann. His firm,

  2. Commodities - Hedge funds pile into bullish bets on U.S. crude by most on record, Rig count steady, hedge funds dump short contracts on 63 million barrels, Hedge funds bail on Copper as Goldman predicts ‘supply storm’, Hedge funds pile up bets against sterling[more]

    Hedge funds pile into bullish bets on U.S. crude by most on record From BRecorder.com: Hedge funds and other speculators raised their bullish bets on US crude oil in the past week by the most on record fuelled by speculation that Organization of the Petroleum Exporting Countries will agr

  3. Investing - U.S. hedge fund Marathon makes Brexit bet on European property, Hedge funds love Liberty and John Malone, DE Shaw could bid for control over TerraForm Power, New York hedge fund increases stake in Tronc as sale talks continue, Don't wait too long to check this +20% value fund's ideas[more]

    U.S. hedge fund Marathon makes Brexit bet on European property From FT.com: Marathon, a $13bn US hedge fund, is building a big Brexit trade, increasing its investments in property across Ireland, France, Germany and the Netherlands, in a bet that they will be among the big beneficiaries

  4. Opalesque Exclusive: Investors struggle to identify the better performing hedge funds[more]

    Komfie Manalo, Opalesque Asia: Fund managers and investors believe that performance is one of the major factors driving change in the hedge fund industry, a Preqin survey showed in its latest Hedge Fund Spotlight. Preqin said that the disappoin

  5. …And Finally - Baby born on Cebu Pacific airplane gets 1 million air miles[more]

    From CNN.com: Here's one kid who'll probably learn to fly before she can crawl. After being born four hours into a flight from Dubai to Manila, baby girl Haven has been gifted 1 million air mile points. Haven's mom went into labor more than five weeks early while flying on an aircraft op