For a number of years now real estate holdings have been over-represented in Islamic clients’ portfolios. The reason is part cultural (good understanding of the asset class) and part necessity; as other forms of investment alternatives have been scarce.
For the past five years the number of offerings of products targeting the Islamic investor base has grown and the investable universe now better mirrors the types of choices that investors in the conventional system have enjoyed for years. This will allow portfolios to become more classically aligned and to invest along proper risk return lines rather than making do with whatever is available. The challenge for the industry is to educate both client-facing staff and the client base itself in these new opportunities if the shift is to gather meaningful momentum.
MARK WATTS
Head of fixed income, Asset Management Group, National Bank of Abu Dhabi
Islamic finance is now looking at other investment classes to look into besides the traditional real estate investment. From Canada we have seen many international Islamic banks looking at setting up equity investment funds or looking at setting up Takaful products to provide an alternative to real estate investments. A total abandonment of real estate in markets will not occur but institutions are looking at additional asset classes to diversify risk.
OMAR KALAIR
President and CEO, UM Financial Group
We are seeing an important shift among Shariah-sensitive institutions, moving to a greater focus on diversification and allocation principles. This effort will ultimately lead to a more rational balancing of investment portfolios. This process, however, can take an entire investment cycle so that asset prices in some categories can recover, liquidations and exits occur, and new opportunities integrate into the mix.
DOUGLAS CLARK JOHNSON
CEO, Codexa Capital
We might say that it’s ‘toothpaste out of the tube’. Islamic financiers have historically invested in real estate, and given its asset-based nature, such investment will likely remain a staple for the continued growth of genuine Islamic finance. While such growth may have been chilled during the financial crisis, Islamic financiers and investors appear to be warming up once again to real estate. Indeed, the industry may once again invest heavily in real estate, but this time ensuring that all the ‘i’s’ are dotted and ‘t’s’ are crossed (i.e. more rigorous terms and conditions) so as to be better situated to weather any future crises.
SIRAJ AHMED
Partner, Agha & Co / Agha & Shamsi