Institutional flows to sharia equity portfolios drove a continued rise in Islamic assets under management last year, but fund houses are tipping the retail and sovereign proportion to grow.

Investor interest from beyond the traditional geographies and investor types is certainly rising, though it has yet to turn into substantial flows. Moreover, new types of sharia-compliant products continue to emerge, and a growing number of firms are considering expanding into Islamic alternative investments.

The sharia-compliant assets of the top 50 Islamic fund houses rose by a quarter (25.6%) last year to $86.4 billion. This significantly outpaces the growth of conventional global AUM, though admittedly from a much lower base.

Global AUM grew by 1.4% annualised to $63.9 trillion between 2007 and 2012, and forecast that it will rise by an average 4.9% a year to $101.7 trillion by 2020, according to a PwC report published last month.

Whereas by end-2012 the Islamic money-market funds were just as big in AUM terms as Islamic equity products, last year saw the latter type pull ahead.

This no doubt reflects the huge surge in valuation in many stock markets, including the US and Japan. Unlike sukuk, which must be structured, Islamic equity investment goes into the same stock markets as traditional portfolios, and merely screens out companies that do not meet sharia standards, such as banks or brewers. As a result, it’s hard to tell whether Islamic equity funds are really receiving a lot of new mandates.

Islamic equity funds grew 48.6% year-on-year to $29.3 billion by the end of 2013. Islamic alternative assets also did well, with AUM rising 43.2% to $8.5 billion. In contrast, sukuk and money-market funds increased a mere 3.5%, to $20.5 billion.

The March issue of AsianInvestor features the full list of 50 firms and an extended feature on the results.

Top 10 fund managers by sharia assets