The Canadian pension fund plans to increase its allocation to the region from 10% to 15% over the coming four years, even as its total assets under management rise.
The Dow Jones Citigroup Sukuk Index, which will be the first of its kind, is scheduled for official launch on April 2.
It is intended to be a benchmark for investors in sharia-compliant bonds, and its sponsors hope it will encourage greater secondary market activity û thus allowing increased cross-market trading.
Banks will be able to structure new products around the index to attract Muslim high net-worth individuals and retail investors to the growing Islamic debt market, which is currently worth about $300 billion and growing. Within the bond market itself, Islamic financing is the fastest growing sector, last year recording growth of more than 25%.
The index, which will initially be composed of seven bonds, will include investment grade, dollar-denominated Islamic bonds, which are also known as sukuk, that are issued in the global market.
To qualify for inclusion, a bond must comply both with sharia law and with the Bahrain-based Auditing and Accounting Organization of Islamic Financial Institutions standards for tradable sukuk. It must also have maturity in at least one year, be worth at least $250 million, and be implicitly rated Baa3/BBB- or better by at least three rating agencies.
Interest payments are banned under sharia law, so bonds are structured like an asset sale, rental agreement or profit-sharing arrangement where the investor can share in a borrower's profits.
Dubai Ports World recently issued the biggest sukuk to date at $3.5 billion to fund its takeover of UK ports operator P&O. The bonds, convertible into shares, were structured so the proceeds are invested in a joint venture partnership that generates income for the bond investors.
Usman Ahmed, deputy managing director for Citigroup Islamic Investment Bank, says, "Any issuer that appreciates the benefits of diversifying its investor base and increasing price tension among different types of investors can consider Islamic financing."
The seven bonds to initially comprise the new index will be issued by the Islamic Development Bank, Solidarity Trust Services Ltd., BMA International Sukuk, Qatar Global Sukuk, Malaysia Global Sukuk, Sarawak Sukuk and Dubai Global Sukuk.
They have teamed up with each other and with overseas investors to boost investment capacity in real estate and infrastructure investments in Europe and North America.
Asset owners across Asia Pacific weathered some difficult market conditions in 2020. While most emerged from the year successfully, some notable exceptions suffered asset drops.
Thanks to the current rise in yields, the key return driver of the bond market is set to change but its bull run will very likely continue.
Asian institutional investors were generally more optimistic about post-pandemic economic recovery but only 33% were confident about achieving their short-term objectives.