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Interview gif

Please can you tell us about the his-

tory of Islamic wealth management?

There is no modern history of Islamic wealth management, with the exception of what has progressed in Malaysia over the past decade. While during the time of the Prophet there was certainly wealth man- agement going on, it would have of course been crude in comparison to the higher lev- els of sophistication we are used to today.

As far as I know there is not a single source of full-scale professional Islamic wealth management in the world today outside of Malaysia.

What we do see is certain investors and as- set managers buying some sharia-compli- ant products, but more or less in a random fashion, with no reference whatsoever to Modern Portfolio Theory or any other pro- fessional benchmark.

This excludes, of course, those investors who professionally manage a single class of assets, mostly equities, where there are more than a few sharia-compliant equity mutual funds and a very minuscule number of fixed-income (sukuk) funds. But, these activities are a subset of asset manage- ment, and are not themselves wealth man- agement.

What are the current trends in Is-

lamic wealth management?

It is sort of hard to spot a trend in an in- dustry that doesn’t exist, but yes, there are some trends. First, there are some groups of bankers who make a fine living off of managing Muslim wealth but who at the same time don’t care about Islamic wealth management. This is especially true here in Switzerland, where not one major Swiss bank has anything at all in the Islamic wealth management space.

I personally think most of the Swiss bank- ing industry is missing one of the greatest new business opportunities in half a cen- tury or more, but maybe I’m wrong. What is clear is this haven of private wealth, this world capital of wealth management, is not providing leadership of any kind to develop and implement Islamic wealth manage- ment.

The solid, real steps being taken to develop Islamic wealth management are more at

the fringe, than the centre. Although, per- haps we shouldn’t call places like Dubai and Riyadh the fringe, as they are near the centre of where the money comes from.

There are two major international banks now working in Dubai to develop true, world- standard Islamic wealth management plat- forms. One has been trying to set this up for years, but was sidelined by the global financial crisis and just now is attempting to restart the process.

The other was relatively unaffected by the crisis, but has always been somewhat slow to market with new products. However, there is no doubting their seriousness in achieving major goals in the Islamic wealth management industry.

Besides these two global banks, we also see some local initiatives, but not much. The most impressive is a large Saudi bank beginning to use its mainstream advertis- ing and public presence to promote the concept of Islamic wealth management. Another good sign is that the local regula- tor, the Capital Market Authority, has been printing and distributing high-quality mate- rial to educate the public on wealth man- agement.

The abuses of the past might have been avoided or lessened had there been a wider, deeper and professional system of Islamic wealth management. Now that the worst of the crisis is over, perhaps some wise minds will decide to reorganise their businesses and concentrate now on cus- tomer demand, not just what makes the most money for the bank.

What can be done to further develop

the industry?

Everything has to be done. Let’s just look at the number of mutual funds with ac- ceptable fatwa. Earlier this year an assist- ant and I completed a survey of over 800 products that could be considered both “Islamic” and a “fund,” or at least by self- description.

We dug deeper and applied screens and filters. We started to reject anything that smelled of private equity, of which a large number were. We removed anything with less than two years operating history and under $25 million in assets under manage-

ment. We cut the funds that didn’t provide clear, timely reporting, or that could not be cleared and settled across international borders.

From the initial pool of over 800 fund-type products we found less than 100 that met our initial tests. That is, we found less than 100 products that might meet professional asset management suitability tests for pri- vate or institutional portfolio accounts.

Given the conventional mutual fund indus- try has nearly 70,000 funds, it shows just how small the Islamic industry is in com- parison.

Further, we started looking at the funds that met our initial tests. We discovered a large number were focused on traded equi- ties, but only a few were focused on fixed income.

That might be fine for a 25-year-old investor who wishes to put the majority of his money into high-risk investing, but what about eve- ryone else? What about the widows and pensioners? Don’t they need investment products too?

What steps should an Islamic inves- tor take to ensure their portfolio

performs well?

I have always said the client should take an aspirin and a nap. Then he or she won’t be involved in the actual management of his or her portfolio.

All kidding aside, there’s no other profes- sion where the client is asked to help the professional perform his duties. When you visit the dentist do you stick a finger in your mouth when he’s performing a root canal?

Trained, skilled asset management profes- sionals (and not relationship managers, who often don’t have much or any knowl- edge of investments or finance) have to be left alone to do their job. This job is hard enough, but even harder for the Islamic wealth manager because of the paucity of investment products. And, the thin size of those products that meet minimum profes- sional tests means they need closer moni- toring than conventional products.

That said, I am the only person in the world I know of (there must be more, but I just

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