THE ISLAMIC ASSET MANAGEMENT BOOM Islamic finance

1 ISLAMIC FINANCE. GLOBAL MARKETS. Towers of strength: Malaysia and Saudi Arabia are leading the way in global ISLAMIC finance THE ISLAMIC ASSET . past five years for south-east Asia has been about 27% per annum, says Datin Maznah Mahbob, chief executive of AmInvest, a MANAGEMENT boom . Malaysia-based ASSET manager. Indonesia has led this growth from a low base, with 37% per annum, with Malaysia registering ISLAMIC finance 26% growth and Thailand 18%.. For most of the larger fund managers in the region, these figures have meant that the ISLAMIC finance ASSET MANAGEMENT is booming globally, with countries past 18 months in particular have been in south-east Asia and the Gulf spearheading growth, thanks in part highly rewarding.

2 CIMB-Principal ISLAMIC has more than $ in assets under man- to improved investor confidence, regulations and infrastructure. agement, says Ramlie Kamsari, chief execu- WRITER James King tive of CIMB-Principal ISLAMIC ASSET MANAGEMENT . Following our incorporation in 2008, it took four years to raise the first THE SHARIA-COMPLIANT ASSET MANAGEMENT Broadly speaking, the ISLAMIC ASSET $1bn, while the second billion was raised in INDUSTRY is on the cusp of a boom . Following MANAGEMENT industry continues to be char- just 11 months. This is a good indicator of the a difficult couple of years, in which the poor acterised by rapid innovation and growth.

3 Direction in which the industry is heading.. performance of regional equity markets lim- The industry experienced a brief but mate- Partly, this success is due to the size of the ited the sector's growth, the stage is set for a rial restructuring around 2012 as a lot of south-east Asian market. Yet, it also reflects a longer term resurgence of ISLAMIC funds. This smaller, inefficient and underperforming highly progressive approach to the regulation positive momentum has emerged as global funds were squeezed out of the market in the of the sector, especially in Malaysia. Govern- equity markets have rallied and improving wake of the financial crisis, says Mohieddine ment authorities, in conjunction with the investor sentiment has spurred fresh demand Kronfol, chief investment officer for global MIFC, have been quick to develop a world- for ASSET MANAGEMENT services.

4 Sukuk at Franklin Templeton Investments. beating framework for sharia-compliant Yet, this outlook is also being shaped by The south-east Asian markets, in con- fund MANAGEMENT , particularly in the areas longer term dynamics, including a more pro- junction with the countries of the Gulf Co- of fund distribution and ASSET allocation. gressive regulatory environment, the pros- operation Council (GCC), are at the forefront In Malaysia's ISLAMIC finance market- pects for enhanced cross-border distribution of this growth. Within these geographies, place, there are no impediments in terms of of funds, as well as the development of sha- Malaysia and Saudi Arabia collectively ASSET allocation, says Ms Datin from ria-compliant pension programmes.

5 Collec- account for close to 63% of the industry's Am Invest. Fund managers are free to tively, these trends are feeding into the total assets under MANAGEMENT . Neverthe- engage with equities, the sukuk and money growing confidence of a sector that is rela- less, the sector's growth fundamentals vary markets as they see fit. This allows Malay- tively nascent, even in the context of the greatly between these two dominant hubs of sian funds to be tailored to specific risk and ISLAMIC finance space. ISLAMIC ASSET MANAGEMENT . volatility profiles in a way that other emerg- ing markets, where the regulations for funds RAPID GROWTH ASIAN EXPLOSION are typically more prescriptive, are not.

6 According to research from the Malaysia As a capital-surplus region with many high- International ISLAMIC Financial Centre net-worth individuals, the Gulf is playing an GEOGRAPHICAL CENTRE. (MIFC), in 2004 total assets under manage- increasingly important role in ISLAMIC Alongside the encouraging regulatory envi- ment amounted to $ By December finance. Yet, it is the Asian markets that have ronment, two other factors have pushed 2013, this figure had reached $ Over been responsible for most of the growth, as south-east Asia to the forefront of the indus- the same period, the number of funds has well as the innovation, until now.

7 Try. First, Indonesia is emerging as a signifi- also increased from 285 to about 1065, of The compound annual growth rate in cant location not only for new fund launches which close to 800 are mutual funds. terms of assets under MANAGEMENT over the but also as the geographical focus of globally 44 | THE BANKER | August 2014. ISLAMIC FINANCE. GLOBAL MARKETS. launched funds. According to figures from Regulatory developments in the GCC are Thomson Reuters, 18% of total funds also beginning to gather pace. Member launched by September 2013 had an Indone- countries are in the embryonic stages of con- sian focus, compared with just 6% in 2010.

8 Sidering a European-style passport directive, This shift can be attributed to ASSET man- modelled on the EU's Undertakings for the agers' renewed confidence in emerging mar- Collective Investment in Transferrable Secu- kets, as well as the massive opportunities rities Directive. Moreover, discussions are presented by the country's infrastructure under way between financial centres in the development, favourable demographics and Gulf and fund MANAGEMENT centres in strong economic growth prospects. But Indo- Europe, exploring the prospects for nesia's rapidly improving regulatory environ- improved cross-border distribution.

9 While ment, with respect to both conventional and both initiatives have a long way to go, they ISLAMIC finance, has also played a role. point to the kind of longer term thinking The regulatory and investment environ- needed to push the industry forward. ment has improved dramatically over the past three years. Indonesia has studied the LAGGING BEHIND. Malaysian copybook and the authorities Nevertheless, immediate regulatory chal- there realise they don't have to reinvent the lenges for the region remain and the envi- wheel; progress is being modelled on the ronment as a whole lags behind that of Asia. Malaysian example, says Mr Ramlie from In the GCC, ASSET managers are dealing with CIMB-Principal ISLAMIC .

10 THE ISLAMIC ASSET regulatory regimes and infrastructure that On the other hand, south-east Asia's role make the distribution of their products chal- as an ISLAMIC ASSET MANAGEMENT hub is set to MANAGEMENT INDUSTRY lenging. For example, the United Arab Emir- expand significantly with the implementa- CONTINUES TO BE ates has introduced a host of new rules, tion of a passport regime focused on coun- which impede the industry's development tries from the Association of Southeast Asian CHARACTERISED BY RAPID due to potentially onerous registration fees Nations (Asean). Under this system, known INNOVATION AND GROWTH and charges, says Mr Kronfol.