No longer a foreign term to the finance community, alternative investments have become one of the popular investment trends over the past few years. Diverging from the three traditional asset types (stocks, bonds and cash), alternative investments typically include hedge funds, managed futures, real estate, commodities and derivatives contracts. It identifies with Islamic financial transactions as most of its products are applicable to Shariah contracts. NABILAH ANNUAR takes a look at recent advancements in the alternative investment landscape.
Regulatory updates
Luxembourg’s Commission de Surveillance du Secteur Financier in July last year received a total of 773 applications with 558 requesting for registration and 215 seeking authorization to be recognized as alternative investment fund managers. From the 215 requests for authorization, 151 entities have been approved as alternative investment fund managers as at the 22nd July 2014. In Malaysia, the Securities Commission issued Shariah parameters on Islamic exchange traded funds (i-ETF) based on gold and silver. The parameters deal with the Shariah requirements on trading of Ribawi-based items, the establishment, structuring and trading of an i-ETF with gold or silver as the underlying asset and the role of the Shariah advisor for the i-ETF.
Private equity and venture capital
Bahrain-based Investcorp and Arcapita are no strangers to alternative investments. Embedded in their core principles, both companies have made a number of acquisitions over the past year. Investcorp in September acquired a portfolio of office and industrial property assets in the US for around US$250 million. The purchases, which cover nearly 2.2 million square feet and have an average occupancy rate of 87%, were made in separate transactions by the company’s US-based real estate arm: for property in Durham in North Carolina, Seattle in Washington, and Jacksonville in Florida. The UK-based GL Education Group, part of the portfolio of Bahrain-based alternative investment company Investcorp also acquired the UK-based assessment technology supplier The Test Factory. In October the company sold Berlin Packaging to the US-based Oak Hill Capital Partners for US$1.43 billion. Later in the month, together with Mumtalakat, it acquired the US-based software and services firm PRO Unlimited. In November Investcorp purchased specialist Italian retailer Dainese for EUR130 million (US$162.7 million). A minority stake in the business will be retained by company founder Lino Dainese, who will continue to assist in the managing of the company’s operations.
Arcapita in July last year completed the sale of medical device firm CardioMEMS for US$450 million to the US-based St Jude Medical, which previously acquired a 19% shareholding in the company for US$60 million. In November it raised US$100 million from new and existing shareholders in the Gulf region. The company, which previously filed for Chapter 11 bankruptcy, has issued a statement indicating plans to make investments in the Gulf region and international markets including the US, Asia and Europe. Just last month, it divested its 50% stake in Lusail Golf Development to Qatar’s Barwa Real Estate Company.
REITs
At least four real estate developers in India, a mix of both conventional and Shariah compliant players, are reportedly in the advanced stages of launching Islamic real estate investment trusts (REITs). Designed to attract Middle Eastern investors, the Economic Times reported that the developers are, however, in a quandary as there are fears of a potential backlash as a result of religious sensitivity especially with regards to Shariah in the republic. Singapore’s Sabana Shariah Compliant REIT realized a gross revenue of SG$100.3 million (US$75.06 million) in 2014, marking a 12.1% year-on-year increase. Its net property income, however, dropped 9.2% to SG$72.95 million (US$54.6 million) due to a 200% increase in property expenses. In the UAE, Emirates REIT announced a 39% year-on-year increase in net profit for the 12-month period ending the 31st December 2014 to US$48.56 million. Total assets at the end of last year were up 78.3% to US$594.15 million as compared to the same period in 2013. Switzerland-based B&I Capital last June partnered with IdealRatings to provide investment solutions for asset owners seeking to tap into Shariah compliant listed REIT companies. The amalgamation demonstrates both companies’ commitment to the Islamic finance industry by creating a new investment sector into Islamic REITs. With this solution Shariah compliant investors are now able to have equities, Sukuk and REITs in their overall investment portfolio which is 70% of the investment quadrant, with the final quadrant on commodities.
ETFs
Nigeria-based investment management firm Lotus Capital last August obtained regulatory approval for the firm’s new traded fund, the Lotus Halal Equity Exchange Traded Fund. The ETF, Nigeria’s third, is one of the country’s few non-interest capital market products. The new fund will track the NSE-Lotus Islamic Index (NSE-LII), which charts the performance of 15 screened equities listed on the country’s exchange including Cadbury Nigeria, Dangote Cement and Unilever Nigeria.
The US-based Falah Capital in October launched a New York Stock Exchange-listed Shariah compliant exchange-traded fund (ETF). Known as Falah Russell-IdealRatings US Large Cap ETF, the fund is designed to allow global investors access to a portfolio of well-known US companies, which have been screened for their ethical and financial dealings, and to provide a full physical replication of the Russell-IdealRatings Islamic US Large Cap Index. The Malaysian-based i-VCAP Management last March launched its second Shariah compliant ETF fund (the sixth in Malaysia): MyETF MSCI Malaysia Islamic Dividend (MyETF-MMID)