Franklin Templeton Investments and Abu Dhabi’s NBAD Asset Management are among those firms developing Islamic alternative investment offerings, as the asset class continues to see strong growth, albeit from a low base.
The bulk of Islamic assets under management – around 85% by AsianInvestor numbers – are invested in traditional equity and fixed income portfolios. But sharia-compliant alternative assets managed by the top 50 fund firms by Islamic AUM rose by 43% last year to $8.5 billion, according to AsianInvestor research. (The full list will appear in the March issue of the magazine.)
Abu Dhabi’s NBAD Asset Management would consider running strategies such as Islamic private equity, says Mark Watts, chief investment officer and head of the business. The firm is initially offering core asset classes, but as its clients develop and diversify, it will move into other areas.
This preference for a core focus is perhaps not surprising; NBAD AM saw a particularly swift rise in sharia AUM last year, to $229 million by end-2013 from $88 million the year before.
One new area it is working on is managing Islamic trade finance portfolios – which are well suited to the sharia space because they involves real underlying commodities, notes Watts. The firm is initially offering to run segregated mandates of $10 million and upwards, and subject to demand and regulatory approvals, NBAD may consider launching a pooled fund incorporating such assets in the second half of 2014.
Watts sees this as a “high-powered alternative to a low cash return”, targeting 3.5-4% returns, with 90-day liquidity, because that is the average maturity the underlying assets. The firm recommends an 18-month minimum investment, but clients can exit quarterly if they so wish.
Watts would not specify a target size for the planned fund, apart from to say that NBAD AM’s exposure to trade finance assets – across both conventional and Islamic – could reach $1 billion within three years.
Meanwhile, Franklin Templeton has been evaluating sharia-compliant PE strategies, says Malaysia country head Sandeep Singh. There have been enquiries from clients about the asset class, and the manager has existing PE capabilities. “We are certainly witnessing increased interest and are in the process of finalising our strategy in this space ,” he says.
Franklin Templeton came close to doubling its Islamic AUM in the year to end-2013, from $1.08 billion to $1.84 billion.