Amid gloomy investor sentiment and sharia fund redemptions in the Middle East – largely down to the low oil price – Islamic alternative assets was one area that saw expansion last year, according to AsianInvestor research.*   

Islamic funds managed by firms in the Middle East fell 8.2% to $28.1 billion, with public equity AUM dropping by a particularly hefty 29% to $7.6 billion. Sukuk and Islamic money-market investments were more stable, but still fell 3.5% to $15.12 billion. (See figures 1 to 3 below.)

However, reflecting the global sharia fund trend, there was a notable bright spot for managers in Gulf Cooperation Council (GCC) countries: Islamic alternative assets, which rose 47% to $5.34 billion (see figure 4).

Certainly, alternatives contributed to the slight rise in AUM for Saudi Arabia’s Jadwa Investment last year. The firm – which runs all its money on a sharia-compliant basis and is 90% invested in its home market – was one of the few in the region to see its assets rise last year, by 4.5% to $5.3 billion. Jadwa’s alternative assets grew 14% to $2.2 billion last year, split between private equity ($1.5 billion) and real estate ($700 million).

Zaheeruddin Khalid, chief investment officer and head of asset management at Jadwa, put this largely down to the launch of new private equity and real estate strategies, as well as the relatively strong performance of its public equity strategies, whose AUM only fell 4.1% to $2.93 billion in 2015.      

Jadwa’s Saudi Equity Fund returned 2.2% last year versus a -14.42% fall in total-return terms for the Saudi benchmark Tadawul All-Share Index (Tasi), 16.05% annualised over three years (3.95% for the Tasi) and 14.05% over five years (4.37%). 

The firm plans to grow its property portfolio “significantly” over the next couple of years, said Khalid, but declined to be more specific about the target size. As it becomes harder to obtain financing for development projects, he added, real estate funds could play an important role filling this gap.

Alternative investments also helped drive the 56% sharia asset growth of Dubai-based Rasmala, which has $1.1 billion under management, including conventional assets. Its Islamic alternatives portfolio expanded 148% to $222.4 million to become easily the biggest share of its $371 million in sharia AUM. 

The firm’s alternative assets incorporate strategies with exposure to equipment leasing, trade finance and real estate, noted Eric Swats, head of asset management at Rasmala, part of Rasmala Investment Bank. 

Asked what has driven demand for these investments, he pointed to several factors: their low correlation to public equity and debt markets; they all have some focus on income; and they are focused on opportunities outside the Gulf region, thereby satisfying growing local demand for geographic diversification.

Public equities
That public equity strategies were hardest hit overall in the Middle East last year is no surprise, given that GCC stocks tanked as oil prices fell, sparking fears that the government would cut spending. These factors, along with intensifying regional conflict and global equity market turmoil, reinforced investor jitters. 

Moreover, significant changes in Saudi Arabia – the largest Gulf market, and home to most of the region’s sharia investment assets – have had an impact. With a new ruling regime in place since January 2015, there has been a push for wide-ranging reforms. 

Saudi Arabia is very conservative, so this has made some local investors uncomfortable, noted Sebastian Henin, head of asset management at Abu Dhabi-based fund house The National Investor.

Retail investors have been the main drivers of the decline in Islamic assets in the Gulf, both directly and indirectly, say industry executives. Regional stock markets such as Saudi Arabia are retail investor-heavy, and sharia funds are comprised largely of retail and private wealth. Such investors tend to be flightier than institutional capital, which explains the speed and magnitude of fund redemptions, said market participants.   

*This was AsianInvestor's annual project to identify the biggest managers of sharia assets. The figures were compiled by Bernice Cornforth. The full feature appears in the March 2016 issue of the magazine.

Figure 1: Middle East managers of sharia assets by total AUM
2015 2014 Company Geography Total AUM
($ million)
Total
2014
%
change
1 1 NCB Capital Saudi Arabia 8,290.0 8,303.5 -0.2%
2 2 Jadwa Asset Management Saudi Arabia 5,282.8 5065.0 4.3%
3 3 Samba Capital Saudi Arabia 3,316.0 3,598.0 -7.8%
4 5 Al Rajhi Capital Saudi Arabia 3,032.9 3,138.0 -3.4%
5 4 HSBC Saudi Arabia Saudi Arabia 2,367.0 3,703.0 -36.1%
6 9 Riyad Capital Saudi Arabia 1,819.1 2,265.4 -19.7%
7 6 ANB Invest Saudi Arabia 1,001.4 825.7 21.3%
8 8 Al Rayan Investment Qatar 853.2 833.8 2.3%
9 7 FALCOM Financial
Services
Saudi Arabia 415.4 609.0 -31.8%
10 10 Saudi Holland Capital  Saudi Arabia 372.0 323.2 15.1%
11 11 Rasmala
Investment Bank
UAE 370.9 237.7 56.0%
12 12 Kuwait Financial Center Kuwait 368.5 457.6 -19.5%
13 15 NBAD Asset Management UAE 213.5 262.1 -18.2%
14 13 National Investments
Company 
Kuwait 210.6 253.4 -16.9%
15 14 Global Investment House Kuwait 138.2 151.2 -8.6%
16 17 Al Dar Asset Management Kuwait 89.6 94.4 -5.0%
      TOTAL 28,140.9 30,119.7  
      Y-o-Y change -8.2%    

 

FIgure 2: Middle East managers by sharia public equity assets (including balanced funds)
2015 2014 Company Geography Total
($ million)
Total
2014
%
change
1 1 Jadwa Asset Management Saudi Arabia 2,934.1 3,060.0 -4.1%
2 2 HSBC Saudi Arabia Saudi Arabia 973.0 3,045.0 -68.0%
3 4 Samba Capital Saudi Arabia 744.8 894.0 -16.7%
4 5 NCB Capital Saudi Arabia 731.6 869.3 -15.8%
5 6 Al Rayan Investment Qatar 698.0 720.3 -3.1%
6 3 Riyad Capital Saudi Arabia 520.9 951.6 -45.3%
7 7 Al Rajhi Capital Saudi Arabia 211.8 310.7 -31.8%
8 8 National Investments
Company 
Kuwait 210.6 253.4 -16.9%
9 9 Global Investment House Kuwait 138.2 151.2 -8.6%
10 11 Falcom Financial
Services
Saudi Arabia 132.2 130.3 +1.5%
11 10 ANB Invest Saudi Arabia 104.4 144.6 -27.8%
12 13 Saudi Holland Capital  Saudi Arabia 91.0 67.3 +35.2%
13 12 NBAD Asset Management UAE 63.4 81.4 -22.2%
14 14 Kuwait Financial Center Kuwait 41.8 52.9 -21.1%
15 15 Rasmala
Investment Bank
UAE 24.3 22.5 +8.2%
16 16 Al Dar Asset Management Kuwait 6.7 7.8 -14.5%
      TOTAL 7,626.7 10,762.3  
      Y-o-Y change -29.1%    

 

Figure 3: Middle East managers by sukuk/ sharia money-market assets
2015 2014 Company Geography Total
($ million)
Total
2014
%
change
1 1 NCB Capital Saudi Arabia 7,263.3 7,156.9 +1.5%
2 2 Al Rajhi Capital Saudi Arabia 2,791.9 2,793.9 -0.1%
3 3 Samba Capital Saudi Arabia 1,953.0 2,177.0 -10.3%
4 4 Riyad Capital Saudi Arabia 1,064.2 1,184.5 -10.2%
5 5 HSBC Saudi Arabia Saudi Arabia 535.0 652.0 -17.9%
6 6 ANB Invest Saudi Arabia 438.0 497.2 -11.9%
7 8 Saudi Holland Capital Saudi Arabia 274.0 245.9 +11.4%
8 7 Falcom Financial
Services
Saudi Arabia 188.3 373.3 -49.6%
9 13 Jadwa Asset Management Saudi Arabia 156.4 84.5 +85.1%
10 11 Al Rayan Investment Qatar 155.2 113.4 +36.8%
11 9 NBAD Asset Management UAE 150.1 179.7 -16.5%
12 12 Al Dar Asset Management Kuwait 82.9 86.5 -4.2%
13 10 Rasmala
Investment Bank
UAE 67.9 125.5 -45.9%
      TOTAL 15,120.2 15,670.3  
      Y-o-Y change -3.5%    

 

FIgure 4: Middle East managers ranked by sharia alternative assets
2015 2014 Company Geography Total
($ million)
Total
2014
%
change
1 1 Jadwa Asset Management Saudi Arabia 2,192.4 1,921.0 +14.1%
2 - HSBC Saudi Arabia Saudi Arabia 859.0 0 -
3 2 Samba Capital Saudi Arabia 618.3 527.0 +17.3%
4 5 ANB Invest Saudi Arabia 456.9 181.6 +151.6%
5 3 Kuwait Financial Center Kuwait 326.7 404.6 -19.3%
6 4 NCB Capital Saudi Arabia 295.1 277.3 +6.4%
7 6 Riyad Capital Saudi Arabia 233.9 129.3 +80.9%
8 7 Rasmala
Investment Bank
UAE 222.4 89.6 +148.1%
9 8 Falcom Financial
Services
Saudi Arabia 94.9 54.1 +75.4%
10 9 Al Rajhi Capital Saudi Arabia 29.2 33.5 -12.8%
11 10 Saudi Holland Capital Saudi Arabia 7.0 9.9 -29.5%
      TOTAL 5,335.7 3,628.0  
      Y-o-Y change +47.1%