In August 2013 the Islamic Corporation for the Development of the Private Sector (ICD) launched a new fund, the ICD Money Market Fund (MMF). This fund is the first fund that has been launched, structured and fully managed by the ICD since its inception.
For the past five years the ICD has been managing a US$247 million UIF fund as a sub-Mudarib, but the MMF is the first fund that the ICD has structured internally and is managing with its own resources. The MMF is a liquidity management fund that will provide periodic income to its investors by investing in Shariah compliant placements, investments and financing products. The target fund size is US$200 million in which the ICD had already seeded US$50 million. The offering will consist of 200 million units at US$1 each.
The ICD Money Market Fund is a Labuan Islamic limited liability partnership registered under the Labuan Limited Partnerships and Limited Partnerships Act 2010. This unique structure enables investors to enter into a partnership agreement as limited partners with the ICD as a designated partner who will be managing the fund as Mudarib.
The ICD will be managing the fund through the newly-establish SPV, ICD Fixed Income, which was incorporated in Labuan. The MMF is an open-ended fund and the term of the partnership shall continue until the partnership is dissolved under the partnership agreement.
The partnership intends to achieve its objective by investing in Shariah compliant placements, investments, and financing products globally benefiting from the ICD’s global reach and competitive advantages in several markets, especially in member countries as a multilateral financial institution and a member of the Islamic Development Bank (IDB) group.
In addition to that, the fund will capitalize on the ICD’s proprietary market knowledge and access to Shariah compliant placement avenues in a geographically diversified region to earn above market returns for institutional unit holders
All investments will be certified by the Shariah committee to be compliant with the Shariah guidelines of the partnership. Investments will be in one or more of the following forms: commodity Murabahah; syndicated commodity Murabahah; restricted and unrestricted Wakalah agreements; Sukuk; Islamic commercial paper;banker’s acceptance; and any other Shariah compliant investment and financing products.
Investments made by the partnership are not restricted to any sectors or subsectors provided that all investments, including any restrictions on any exposures to any country or region, are to be discussed and approved by the investment committee.
The target return on investments of the fund is 4-5% per year net return on invested capital contributions. Accumulated/periodic returns will be distributed to investors’ accounts upon investors’ redemption request and may be reinvested at the investor’s discretion. The fund manager will identify suitable counterparties with potential investment opportunities for the fund and will carry out due diligence on proposed investments. The manager will also monitor the ongoing performance of investments.
An investment committee has been established for the fund by the manager. The investment committee of the fund will approve and monitor all investment decisions, approve strategy and monitor the fund’s portfolio. The fund manager will deploy two types of strategy to manage the investments of the MMF. The types of such strategy will be based on regulatory requirement, liquidity risk management, and required rate of return from investments.
It is divided in to two parts: (a) cash management, (b) investment management. The MMF will maintain at least 90% of its funds in investment instruments. The MMF will not invest in project finance or green field projects.
The fund manager appoints the Shariah committee of the IDB Group as the Shariah committee of the partnership in the first year, but as the business volume of the MMF increases, the fund will contract the services of external Shariah committee.
With a view to provide Shariah compliant liquid fund management solutions, the ICD treasury has been generating incremental revenue for the past five years as follows:
The ICD treasury is well-positioned to access deal flow opportunities and to co-invest in wide range of geographic locations, markets, counterparts and Shariah compliant instruments. The target rate of return from ICD treasury investments up to end of the second quarter of 2013 is 6%. Average return for the portfolio since January 2011 is 5.1%.
The ICD treasury can reach out to counterparts in both member and non-member countries of the ICD to generate risk-adjusted return to the investors of liquid fund, especially those who prefer to receive their profit and principal investment within a two-year time horizon. The MMF will be leveraging on the ICD’s treasury performance in generating an above market return for its investors.