The demand for Shari’ah compliant investments and financing sources as a whole grows ever more important and may well be on its way to becoming mainstream. As part of this development, Shari'ah compliant private equity funds are increasingly coming to the attention of private equity fund managers, keen to tap a market of investors not only from the booming Gulf States, but from over a billion Muslims worldwide. Those investors who prefer investing in a Shari'ah compliant fashion, also seek an asset class that represents socially responsible investments and view fund investments much like conventional investors. Although the first Islamic equity fund was established as far back as 1986, it is only fairly recently that the sector has started to expand rapidly, with more than 150 such funds currently available on the market.
Traditionally, Islamic fund managers have directed their investment focus on the geographical area of the Gulf Cooperation Council (GCC), US and European equities as well as other asset classes such as real estate. Likewise, expansion into North Africa, the Indian Subcontinent and Southeast Asia is also underway, with Malaysia for instance, proving an especially attractive, and to some extent accommodating, jurisdiction. In 2006 alone, private equity firms in the GCC raised US$10 billion of capital, a figure which is expected to double each year over the coming years. Analysts expect funds managed by local companies in the Gulf region to exceed US$25 billion by the end of 2007.
The key reason for the growing interest in Shari’ah compliant private equity is the sheer immensity of the current pool of available Islamic capital. Fuelled by high oil and gas prices and with production at almost maximum capacity, an ever-increasing amount of cash has been streaming into the Middle East, which - also a requirement under the Shari’ah - needs to be invested responsibly. There is no reliable data on the size of funds available for investments, though estimates range from US$500 billion to several trillion US dollars. Regional high net worth individuals alone – most from Saudi Arabia, Kuwait and the United Arab Emirates – are said to control assets of over US$1.1 trillion. In addition, investors from the Gulf Region are putting their money into strategic investments to prepare for the future when oil and gas revenues may decline.
Private equity funds are particularly attractive for Islamic investors because, compared to other asset classes, they provide higher returns, diversification, relative price stability and a broad range of investment opportunities. As the industry matures and the track record of well managed Islamic equity funds evolves further, Shari’ah compliant private equity funds may well become an attractive asset class not only for Islamic but also for non-Muslim investors. On the demand side, the tightness of world-wide conventional debt markets and interest-based financing favors equity-based investment sources.
These conditions provide the basis for the fast growth of this investment class.
The Islamic Private Equity seminar aims to examine typical issues that need to be addressed when structuring an Islamic fund, especially from the perspective of conventional market participants and requirements involving the fund's investment assets, with due regard to differences stemming from the geographical location and types of assets involved. Focus will also be placed on the current and future trends of this booming industry.
