HSBC Amanah, the Islamic arm of lender HSBC, expects a pipeline of 30 new Islamic funds to boost its assets under management (AUM) for serviced funds to $10 billion, its global head of securities services said on October 18. Germain Birgen said the bank currently services 90 Islamic funds worth roughly $5 billion in assets. The 30 new funds are expected to launch within the next 12 to 18 months, he said.
"Most of the funds are hybrid types of funds, vehicles with real estate, private equity, equity and some sukuk funds," Birgen told Reuters. "On the private equity side, we see a lot of interest."
Private equity funds, wholly or in part, make up one third of the projects in the pipeline and are expected to have $1 billion in assets by the end of their first full year.
Birgen said that managers in the Middle East and Asia are particularly bullish on investment opportunities in the private equity sector and investors are more willing to invest in smaller-sized private equity funds tied to the real economy, such as healthcare, rather than small equity funds which can be volatile in the current market.
Global Islamic funds' assets grew 7.6 percent in 2010 to $58 billion, according to a report by consultancy Ernst & Young, much slower than growth of 35 percent seen by conventional funds.
But 70 percent of the 800 global funds failed to reach the estimated break-even mark of $100 million, based on average management fees, causing more funds to liquidate and resulting in limited interest from institutional investors.
Birgen said the Islamic asset management industry may also be lifted by increased interest from non-Muslim investors, opting for sharia-compliant funds to gain access to socially responsible investments and lower risks.
"Some of the institutions and ultra high-net worth individual don't only look at these types of products for religious or ethical reasons but also for risk management purposes," he said.
"Islamic products have lower exposure to derivatives and alternative investments strategies. Fund investors refer to it as 'back to basics'."
Among the funds in the pipeline, four of the projects were initiated in non-traditional markets such as Brazil, South Africa and Australia.
Birgen said that there is also an increasing trend in the industry for Islamic fund managers in traditional Muslim markets to set up international domiciled funds in Singapore and Luxembourg, to take advantage of better financial regulations and draw more conventional investors.
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