Asset management, despite being one of the fastest growing segments in the Islamic finance industry, is still regarded as a young sector. The Global Islamic Finance Report 2011 by BMB Islamic reports that Islamic funds constitute only 1.3% of the total number of funds globally, while Islamic assets under management are only 0.36% of the global funds universe.
The figures reveal the potential for asset managers with Islamic portfolios to penetrate the market further. This prompted CIMB-Principal Islamic Asset Management (CIMB-Principal Islamic) to conduct a global survey last year to gauge the level of awareness and attraction of Islamic finance by institutions in the conventional space: such as insurance companies; banks; asset, wealth and private wealth or trust managers; and pension or sovereign wealth funds and their advisors.
Some 52 respondents participated in the survey and the responses to some questions were eye-opening, reveals Noripah Kamso, CEO of CIMB-Principal Islamic; particularly regarding the appointment of asset managers for Islamic funds, as well as the ranking of global Islamic financial hubs.
CIMB-Principal Islamic manages assets for institutions comprising central banks, sovereign wealth funds, pension houses and Takaful institutions. The survey results have allowed the firm to structure a business, marketing, and investment model while helping it to focus and strategize going forward.
While there are several dedicated several Islamic asset management companies, answers to one of the survey questions revealed that the majority (75.7%) of respondents would appoint a conventional global house to manage their Islamic portfolio.
Such an indication, according to Noripah, proves that these institutions are performance-driven. Global conventional asset managers are the obvious choice due to their proven track record, some spanning 50 years. The institutions are therefore accustomed to the conventional investment process and would continue to utilize their services.
Noripah believes that such institutions need to be convinced that the investment process practiced by Islamic asset managers is identical to that of their conventional counterparts. She says the evidence required includes having a global research platform as well as the legacy of a conventional global asset management house, in addition to appointing managers who have already successfully handled conventional portfolios to handle the Islamic range.
A case in point are the Amana funds managed by US-based Saturna Capital. Monem Salam, the director of Islamic investing and deputy portfolio manager of the Amana funds, has been quoted as saying that about 70-80% of its investors are non-Muslims; comprising advisors, money managers and even institutions. He said that since Amana funds have been able to outperform the conventional market, these investors have flocked to them. In 2003, the total assets under management for both the Amana Income Fund and the Amana Growth Fund stood at US$40 million. As at the 30th June 2011 the Amana Income Fund stood at US$1.39 billion, while the Amana Growth Fund is now US$2.15 billion.
The survey is a wakeup call for Islamic asset management houses to move out of their comfort zone. As the saying goes, there is no reward without risk, and in such volatile times this is the perfect opportunity for Islamic asset managers to showcase their offerings and abilities to these institutions. As Noripah points out, a majority of Islamic portfolios have outperformed their respective benchmarks throughout the numerous ‘black swan’ incidences of the last five years. It may seem like an uphill task but the end result will be worth it.