BNP Paribas Investment aims to double its Islamic assets under management this year as the global economy recovers but higher borrowing costs world-wide could dampen market sentiment, a senior official said on March 03.
BNP's Islamic assets of $500 million would be boosted by demand from sharia insurers and private banks, with investors expected to favour equities as they embrace riskier assets, the fund manager's Southeast Asia head said.
"This first quarter, it seems like all the pipeline that was slightly delayed now is coming on stream both in terms of distribution partners who are looking to launch Islamic funds and on the institutional side where investors are putting money into this market," Cheng Tan Feng said in an interview. "A lot of the new assets that we see will be coming from Southeast Asia this year. We are working on deals that would double our assets under management this year."
Islamic investors are expected to prefer open-ended funds and emerging markets such as India and China, BNP Paribas Investment's executive director Hisham Abdul Rahim said. "We've seen pockets of interest in Islamic finance emerging from places like Australia, Hong Kong, Japan, Korea, France and Britain," Cheng said.
He said the global monetary tightening and Dubai's debt restructuring could affect the Islamic finance market. "The (Dubai debt) crisis did have an impact across the market because of the perception that investors have," he said. "We're not saying that it's going to affect fundamentally the broad market but it becomes a victim of perception."
Sukuk's reputation as a safe haven investment suffered after Dubai real estate developer Nakheel, issuer of the world's largest Islamic bond, became part of a debt restructuring at some Dubai state-owned companies. Many Islamic banks use the conventional LIBOR (London Interbank Offered Rate) to price sukuk, as there is no benchmark Islamic rate.
BNP's Islamic equity optimiser fund has gained 29 percent over the year as of end-January, compared with 26 percent for the Dow Jones Islamic Market Titans 100. Demand for Islamic funds has grown globally but it remains a fraction of the mainstream asset management industry. There were about 750 Islamic mutual funds with combined assets below $50 billion as of the first quarter of 2009. Only 14 funds are larger than $500 million each, according to Ernst & Young.
Saudi Arabia holds about $19 billion in Islamic funds under management and Malaysia about $4.6 billion, making them the top two sharia funds centres, Ernst & Young said.
Islamic investments have grown about 10 percent a year for the past decade, Standard & Poor's estimated. But practitioners say the industry is constrained by negative perceptions about Islamic finance, a lack of uniformity on the sharia compliance of products, a shortage of long-term assets and a shallow secondary sukuk market.