The Islamic finance industry has witnessed several mergers and acquisitions of asset management companies in order to get exposure to the Shariah compliant space. Recent news surfaced regarding the acquisition of a Dubai-based asset management company, Algebra Capital, by one of the world’s largest investment companies: Franklin Templeton Investments.Franklin Templeton previously also increased its equity stake in Algebra to 40% in March 2009.
Franklin Templeton, with over US$733 billion of total assets under management, is looking to broaden its horizons in the Islamic space, particularly the global Sukuk sector, through its venture with Algebra Capital. It will utilize the newly formed entity, Franklin Templeton Investments ME, to launch a retail product close to the end of 2011 and also a GCC-focused fixed income fund within the next 12 months. Algebra Capital provides services to institutional investors and high net worth individuals as well as separate client-focused portfolios. The firm also manages mutual funds for its clients. According to data from Eurekahedge, Algebra Capital has four mandates.
This is not Franklin Templeton Investments’ first foray into Islamic finance. A year after obtaining its capital markets services license from the Securities Commission Malaysia (SC) in 2009, it was granted its Islamic license.
Asia’s accelerating growth and the exponential growth of the Islamic finance industry has also encouraged the likes of HSBC and Standard Chartered to set up Islamic windows in Malaysia, still regarded as the world’s biggest Sukuk market. The country is also the second largest mutual fund market after Saudi Arabia in terms of asset under management and holds the top spot for the largest number of Islamic retail funds in the world – 157 in total as at the 30th April according to the SC’s website.
Such prospects have attracted other foreign asset management companies to obtain Islamic asset management licenses in Malaysia: including Nomura Islamic Asset Management, OSK-UOB Islamic Fund Management, Reliance Asset Management, Aberdeen Asset Management and Saturna, a subsidiary of Saturna Capital, which owns the biggest Shariah compliant equity fund in the US.
The Sabana real estate investment trust fund (REIT), launched late last year, was testament to the growing interest shown by the conventional asset management industry towards other asset classes. US fund manager Fidelity, through its Hong Kong unit FIL Investment Hong Kong, was named as one of the cornerstone investors for the REIT.
Interestingly, the one classification of Islamic funds not new to the conventional companies is exchange traded funds (ETFs). Eurekahedge lists 17 Islamic ETFs in its database, nine of which were launched in 2007. They include Barclays Global Investors through its iShares, Deutsche Bank’s ETF platform ‘db x-trackers’, AXA Investment Managers and BNP Paribas with their joint ‘Easy ETF’ brand; as well as Japan’s Daiwa Asset Management based in Singapore, and UK-based ETF Securities.
The Islamic asset management industry is currently estimated to be US$55 billion, and although still a far cry for its conventional cousin, it is clearly moving forward. The global financial crisis almost caused it to come to a grinding halt when it hit a plateau of US$52 billion. However, with the global markets rising from the ashes towards a rather shaky economic recovery, the potential and the opportunities of the Islamic finance industry have become too obvious for even conventional asset management companies to ignore.