GLOBAL - The Islamic fund market place it set for a boost, outpacing overall global fund industry growth, according to new research from Cerulli Associates.
The industry is currently estimated to be worth around US$5bn, with a growth rate of between 12-15% a year. Globally, funds number around 105.
Like some socially responsible investing (SRI), Islamic funds are based on a principle of exclusion, weeding out companies whose activities are considered immoral by Islamic or Sharia law. All funds prohibit companies involved with alcohol or pork. Traditional finance houses, including some banks and lawyers, are also excluded because Muslims do not believe in interest charges. Others ban companies involved in arms, entertainment industries, and pornography.
Cerulli found that Western firms dominate Islamic fund management, running nearly 70% of current assets under management. Big players include Boston-based Wellington Asset Management and HSBC’s Amanah unit. Cerulli also identifies Barclays, UBS, Pictet & Cie, Merrill Lynch, Deutsche Asset Management and Worms & Cie as having significant stakes in the market. The appeal spans both private and institutional investors, said the firm.
“Although recent events and market conditions have dampened fund managers’ enthusiasm for launching Islamic funds, low barriers to entry and a large potential market signal an interesting growth opportunity for asset managers,” said Cerulli.
A spokeswoman for the firm added that fund managers interested in setting up an Islamic fund must have the approval of at least two Islamic scholars.
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