MIF Monthly speaks to Fauzi Saad (CFA), partner of 3i Capital on the group’s innovative Enmaa’ Dubai Growth Fund and his take on Islamic finance in Malaysia.
Enmaa’ or the Dubai Growth Fund (DGF) Class A is a US$99.99 million Open-Ended Public
Shariah Compliant Mutual Fund that aims to achieve above average long-term investment returns. The Fund, initially set up for Middle East investors is looking to diversify its investments in public and private equity securities. The Fund also targets under-valued publicly-listed companies and pre-IPO companies, following a growth investment style, and aiming to achieve an annual 25% return on investment.
3i Capital is a collaborative effort between Malaysia and the Middle East, with former deputy prime minister of Malaysia, Anwar Ibrahim appointed special advisor, and noted Shariah scholar Dr Daud Bakar of Amanie Business Solutions as Shariah advisor to the group.
What is 3iCapital’s most successful endeavor so far? Who are your clients, and why did you decide to delve into Islamic finance?
3i
Capital Group (3iC) successfully architectured a financing package for one of the largest media companies in the Middle East for a US$125 million bridge financing facility, and corporate restructuring in excess of US$1 billion.
Early this year, working closely with HSBC and Emirates Islamic Bank, we launched a US$100 million growth Fund (Enmaa’) as part of 3iC Fund’s series of US$300 million in total in Dubai. Our clients were both individuals and institutions.
Islamic finance is our core business as most of our partners have a long-standing track record, even before the inception of Islamic finance as a mainstream tool in the early 90’s. One of our earlier focuses was in venture capital investments, thus making the migration into Islamic finance relatively natural.
What in your opinion is the main driver behind Islamic finance?
There is no single driver, rather I believe it is a combination of many forces that have ensured the growth of Islamic finance up to date. One thing for sure, Islamic finance is founded on very clear guiding principles. Although it gives flexibility and creativity in one hand, at the same time, it provides a sense of fairness between parties.
The role of regulatory bodies and government are very crucial in providing proper parameters for both practitioners and the public at large so that Islamic Finance can be seen as the most viable and credible alternative to the other system.
How differently are Shariah funds run compared to conventional funds?
The mechanics are very much the same. The key differentiators are the parameters which guide the selection of the funds’ investments.
What are the obstacles your company has faced in terms of setting up of your Islamic fund?
The main obstacle would have to be regulatory issues. Most of our instruments were set-up in western jurisdictions, which give more flexibility (in terms of practice) but at the same time it gave us lot of ‘headache’ trying to educate the regulators in such places. Educating the public about the fund has also been a challenge, with trying to break the perception of the fund being just ‘another fund’.
Do you feel that Islamic finance will ever be able to reach a general consensus in terms of Shariah rulings?
I believe that
Shariah ruling is not the most important issue for the Islamic finance industry (for now). Rather, it is how well the public is told and educated about these different rulings. None of these rulings deviate from the core of Islamic teachings. The implementation of such rulings has taken into consideration the norm of the people in certain places and this is considered as the ‘allowable differences’ in Islam since it has its own basis. These ‘allowable differences’ can be changed during the course of the practice to best suit the situation at that particular time. In fact, I foresee the Islamic finance industry benefiting from adjustments in
Shariah rulings to better suit the public.
What is your take on the Malaysian Islamic finance environment, and where does 3i Capital fare?
There is no doubt that Malaysia is a pioneer in Islamic finance. However, I feel that lately, its sustainability and competitive-edge has become questionable. One of the reasons is because Malaysia has not reached out to the global market. I also feel that Malaysia has lost its steam to project a new phase of Islamic finance: cross-border investment/financing and creative and competitive product development. This is where we feel 3iC has its niche and would like do its best to fill in the vacuum.
In your opinion, what does the Malaysian Islamic industry need to position itself as an Islamic hub?
There are many. Malaysia can start by becoming a very effective and attractive place for doing businesses. The effectiveness can be measured by having enough skill-sets needed by the industry and very efficient delivery channels. Attractiveness lies very much on the positive working environments that international investors would like to see. These things have to be promoted and enforced. We need to de-regulate some of the financing and investment scopes and activities. Malaysia’s stock exchange must become more attractive and credible for international companies and investors.
Is now the right time for an Islamic finance boom?
I hope that would be the case, but in reality I would give it a few more years. We need more awareness among the public and more Islamic finance instruments.
Where do you project Malaysia to be in the next five years?
I project (and hope) that Malaysia can return to its leading role in the Islamic finance industry. I expect more cross border Islamic finance activities taking place and the market is ready to absorb more ‘international flavor’ in its dealing.
Details on the Enmaa’ Fund:
Structure:
A British Virgin Islands (BVI) International Business Company, registered with the British Virgin Islands Financial Services Commission (“FSC”) as a Public Fund under the Mutual Funds Act, 1996 (as amended). The fund is to seek listing on the Dubai Financial Market, UAE.
Strategy: The Fund will implement active asset allocation and market timing strategy to mitigate risk and fully capitalize on certain market condition in selected countries.
Receiving Bank: Emirates Islamic Bank
Custodian & Administrator: HSBC Bank Middle East
Managers: 3i Capital Group Corporation, a BVI-licensed Investment Management Company as fund sponsor and The National Investor as portfolio manager.
Co-Sponsor: Dubai Business Women Council (DBWC)
Special Advisor: H.E. Anwar Ibrahim, Deputy Prime Minister of Malaysia (1993 – 1998)
Finance Minister of Malaysia (1988 – 1998), Education Minister of Malaysia (1983 –88)
Shariah Advisor: Dr Daud Bakar
Share Price & Min. Investment: Share price is $1 per share and minimum investment is US$1,000.
Management Fee: 2% of Net Asset Value
Placement Fee: 2.5% (special waiver is given to certain organizations and groups)
Performance Fee: 20% of the annualized rate of return achieved by the Fund over 10%.
Net Asset Value: Calculation is based on the closing price of stocks in fund on weekly basis.
Exit / Redemption: Friday of each week with a 5 day notice. Exit fees set at 1% for redemptions in the first 2 years.
Subscription: Any of Emirates Islamic Bank branches at any time based on weekly NAV.
Dividends: All dividends are rolled back into the fund.
Financial Year-end: 31st December.
Auditor: Baker Tilly International (Former unit of KPMG).
Legal Advisor: Al-Kamali Advocates & Legal Consultants (Dubai) & Samuels Richardson & Co.