The IFN 2011 Issuers & Investors Asia Forum was a meeting of the minds to discuss matters, raise concerns and share views of the Islamic finance industry. This included the asset management industry where global fund managers took to the stage to highlight several interesting issues.
Raja Teh Maimunah, the chief operating officer at Hong Leong Islamic Bank believes that the industry’s lack of accessibility to global markets and failure to distribute its investment products are among the factors for the low demand among investors.
She proposed an automated screening process initiative undertaken by the major stock exchanges of countries offering Islamic finance to encourage the growth of Shariah compliant investments, particularly in the asset management sector.
“If you automize the screening process using AAOIFI standards or other generally accepted platforms, you could find out very quickly the Shariah compliant stocks in any stock exchange. That would help the distribution. There are available stocks globally – we just do not know what they are or we just do not have access to them,” she said.
Raja Teh illustrated the cross trade model of the Eurozone’s markets in financial instruments directive (MiFID) that allows trading of stocks listed on different bourses without the need to conduct a cross listing.
“If you create something which could be listed either in Malaysia or Kuwait or Abu Dhabi, allowing a cross trade without cross listing, what it does is to allow accessibility to a wider audience,” she said.
An automated screening process for the Sukuk market was also suggested by Mohd Farid Kamarudin, the executive director of Sukuk and alternative investments at AmIslamic Funds Management. He said that unlike equity screening, where equity indexes are used, there does not exist a similar approach for fund managers to screen out certain types of Sukuk structures that would suit their client’s needs.
Fund managers would therefore rely on their Shariah advisors to conduct the screening and such a process involves cost. “It would be helpful if a system is designed that had the ability to identify the structure used by a particular Sukuk and allow fund managers to readily access that information so that they will be able to do their own screening and lower the cost,” he said.
There was also a general consensus at the forum that volatility in the markets creates opportunity for investment. The challenge, however, according to Md Noor A Rahman, the CEO of OSK-UOB Islamic Fund Management, is to attract investors in such a climate. Transparency therefore becomes key as investors continue to demand more information relating to their investments.
Md Noor said that fund managers must disclose all information on the product they offer to help investors make a decision. This includes explaining the movement of the benchmark and how it would benefit investors should the benchmark shift either upward or downward.
Noripah Kamso, the CEO of CIMB-Principal Islamic Asset Management highlighted the challenges of the Islamic asset management sector, including image risk, where conventional investors still view the term “Islamic” in a negative light, and the ability to demonstrate a visible track record, as visibility of Islamic funds on the global platform is limited.
She said it is important, from the standpoint of Islamic investment funds which are very domestic-centric, to internationalize their visibility and track record. She added that there are efforts to encourage asset managers to internationalize track records and capabilities by using global platforms such as Luxembourg and Dublin. “By registering a fund on these global platforms, fund managers are be able to exhibit their track record,” she noted.
Noripah likened the process to a display in a shop window, where institutional and retail investors can track such a fund on international investment research providers. “When these investors become keen to invest, an internationally visible track record as such, will be the key determinant in appointing asset managers,” she said. — RW