Search This Blog

16 Jan 2007

Shariah Capital Finds Islamic Hedge Fund Niche

Hedge fund Shariah Capital is looking for strategic partners in the Middle East among the local banks with international funds, and major investment institutions and high net worth individuals. “Hedge funds are all about diversification” they say.

But wealthy Muslim investors in the Gulf Arab region and Asia have traditionally frowned on hedge funds because they adopt strategies that are considered forbidden by Shariah. Shariah being Islamic law.

So several fund managers have been trying to develop Shariah compliant strategies that will emulate the strong returns of hedge funds and tap some of the estimated $750bn in Islamic assets parked equity and property related funds. The oil-rich Persian Gulf region has close to a trillion dollars of liquidity.

The ideal ‘fund of caution’ for the Arabian investor is an Islamic hedge fund of funds, argues Eric Meyer, President and CEO of US based Shariah Capital who visited Dubai for the Islamic Funds World Conference to promote what is believed to be the first Shariah compliant fund of hedge funds. “Islamic hedge funds have the advantage of not being highly borrowed, unlike many hedge funds. This is one reason for their strength. It is true that borrowing by hedge funds improves return in a bull market but this will also magnify losses in a downturn.” Meyer said.

The firm spent the past six years working with Islamic scholars, as well as Western financial and legal experts, to develop risk management tools that enable observant Islamic investors to participate in the alternative investment world. The hedge fund developed the software to screen thousands of publicly-traded companies for Shariah compliance in seconds in 52 securities markets around the world.

Meyer's firm initially sought the fatwas to launch its own Shariah-compliant fund of funds. Now, the division of Meyer Fund Management LLC has expanded its business strategy. It is making its investment vehicles available to other alternative investment managers who want to create their own Shariah-compliant funds to attract investors in the Middle East and Asia.

Amiri, a UK-based Islamic investment manager with a partner in Bahrain, also believes it has found a Sharia compliant way to emulate one of the conventional hedge fund strategies short selling. He plans to launch a global long short equity hedge fund in 2007 that it says will comply with Shariah.

A conventional short is forbidden by Shariah because it requires a hedge fund to sell something it does not own, while pay out interest to brokers, considered usury in Islam. The $1.3tn global hedge fund industry plans to develop a viable $50bn Islamic niche market in the next three years, according to sources.

No comments: