Monday, 12 September 2011

Investors Shy Away from Sharia Funds Following Arab Spring

FINANCIAL NEWS: Sharia-compliant funds had been proving increasingly popular until the global financial crisis and then the Arab Spring frightened off investors and stymied private equity activity in the Middle East.

Fundraising volumes have collapsed, with not a single sharia fund raised so far this year, acacording [sic] to data provider Preqin.

Sharia-compliant funds, which enable investors to comply with Islamic law, are simple to structure and are guided by certain principles relating to interest accrual and the types of investment they can make.

Funds could be restricted, for example, from investing in businesses related to alcohol, gambling, pornography, weapons, tobacco and pork-related products. The funds are overseen and approved by a sharia supervisory board.

Sharia funds have varying degrees of flexibility depending on their target investors, which can include ultra high net worth individuals, institutional investors and sovereign wealth funds, according to Richard Hughes, a senior fund services manager at fund administration specialist Vistra Group.

Private equity firms based outside the Middle East can target Muslim investors by offering side-vehicles set up alongside existing funds that are not sharia-compliant.

Before the onset of the financial crisis, interest in sharia funds had been on the rise, with private equity firms raising $5.6bn of capital through six such funds in 2006. » | Ayesha Javed | Monday, September 12, 2011