Interview gif
but don’t bother to sell outside their home markets. They’re either satisfied with their domestic market alone, or just can’t and won’t spend the money to achieve global distribution.
Either way it’s a shame, as some of the mu- tual funds captive in these local economies are, in fact, quite good. A bit of exposure to sophisticated investors in advanced economies would go a long way to improv- ing things.
What are your views on Islamic
hedge funds?
I have a wait-and-see attitude toward Is- lamic hedge funds. A few years ago when four shared a common European platform and fatwa I bought about a million dollars worth, but never got to see how they really performed because of the looming credit crisis.
In general I’m not a fan of the vast major- ity of hedge funds, I don’t believe at all in alpha, and I think a lot of people are fool- ing themselves about the utility of hedge funds in nearly all portfolios. Making a hedge fund Islamic is not going to change my mind about these investments.
How important is sukuk as a wealth
management tool?
You must be joking! How important are su- kuk to Islamic wealth management? They are at the heart and centre of the business. Modern Portfolio Theory (MPT) tells us to diversify investments across industries, ge- ographies, and business size.
It also tells us to diversify across asset cat- egories. It is therefore no surprise that a typical Balanced strategy model portfolio (and actual) allocation in a private client’s account might have 5% in cash (money market or deposit), 45% in bonds, 35% in equities, and 15% in alternative invest- ments.
There is nothing spiritual about MPT. It ap- plies to Muslims and Christians and Hindus and everyone else. The only difference is security selection. If an investor needs 50% of his portfolio in safe, conservative assets then what better security for a Mus- lim than a sukuk?
Assuming Muslim private wealth holders today have a total of $3 trillion of wealth under management, and assuming 40% of that would go to Islamic wealth manage- ment if the owners could be convinced of its legitimacy, it’s also fair to assume 40% of that amount would be placed in sukuk or sukuk funds.
One would therefore have an immediate demand for $480 billion in sukuk assets. But, the entire world today only has around $100 billion in sukuk, including Malaysian. What this means is potential demand for sukuk just from the private client market, which is dwarfed by the institutional mar- ket, is five times greater than supply.
Why did you decide upon a career in Islamic wealth and asset manage-
ment?
Clearly there is a vast and unmet demand for Islamic wealth and asset management. Consider first that nearly all Muslims would choose sharia-compliant investing if they were convinced there was no practical dif- ferences with conventional investing, then imagine what the global private wealth of Muslims might be.
Of course it is measured in some several trillion dollars. Since there is barely $50 billion in Islamic mutual funds, and per- haps another $50 billion in non-Malaysian sukuk, we are looking at a gap that a whole generation of bankers would have trouble filling. This challenge is what drives me to dedicate all my professional life only to Is- lamic wealth and asset management.
What have you contributed to the development of Islamic wealth man-
agement?
I was the first in the world to develop a su- kuk fund. I also developed the first sukuk basket participation note, which looks like a derivative but in fact is a pure play on a pool of true sukuk assets.
Later I developed the first Saudi REIT, which has yet to be launched but where I am cer- tain there is a gigantic market, inside and outside Saudi Arabia.
Lastly, I am working to bring the first Eu- ropean corporate sukuk to market. There are several very prominent European com- panies that could easily convert a portion of their Eurobond issuances to Islamic fi- nance. My job is to convince them to do so.
I like to think of myself as playing a role in making practical investment products that people actually need. There is all kinds of innovation out there, but not all of it is good. Trust me, I don’t think many investors today want to hear about derivative-based struc- tured products with a fatwa wrap.
Those things were so heavily oversold that one wonders about the sales tactics to sell them.
2010 June GlobalIslamic Finance 39
There is also the vast amount of Islamic pri- vate equity that was thrown into the market, in particular during the 2003-2007 bubble. For a few years there seemed to be nothing stopping the private equity guys.
I guess that somewhere around $50 bil- lion was absorbed by these firms during the bubble. Today it’s mostly lost since the large majority was for spectacular real es- tate projects that didn’t have any final buy- ers.
So, sometimes one has to celebrate the things he created, and other times cel- ebrate the things he didn’t create! I am in a way honoured that I never got involved in the development of products that have little or no place in the world of Islamic wealth and asset management.
What advice would you give to someone looking for a career in
Islamic wealth management?
I would warn that person that he or she could be unemployed for a long time. It al- ways amazes me to read breathless news accounts of the high demand for Islamic bankers. Where? Since half of Islamic banks in Arabia are coming out of a very tough time, they won’t be hiring soon. The other half will hire the good ones who lost their jobs.
As for Western banks, they don’t seem to have a bit of interest in Islamic wealth man- agement, with very few exceptions.
If someone wants a career in Islamic wealth management they had better be patient.
What do the next 12 months have in store for Islamic wealth manage-
ment?
Really I don’t see much. The few big banks who want to be in this business, are vast- ly outnumbered by those who don’t. Of course I believe the banks that get into Islamic wealth management early will gain first-entrant advantage.
I also think the demand for Islamic wealth management is huge, bigger than almost any new market the conventional wealth management industry has ever seen.
But decision-makers in big institutions still will continue to consider not just Islamic wealth management but all of Islamic banking a niche that isn’t worthy of their
attention. gif
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