Cerulli Associates presents analysis of global Shariah asset management. Cerulli estimates that at the end of third-quarter 2008 total mutual funds and discretionay assets under management hit US$65 billion.
The estimation is based on the data from private and public sources with proprietary surveys of international and domestic Shariah managers. A figure that is well below the hundreds of billions often associated with this market.
Cerulli notes that the number of Shariah compliant mutual funds has doubled in the last three years, these are offered mainly by domestic managers.
Saudi Arabia is currently the largest domestic market for Shariah investments, but Malaysia has the largest number of registered mutual funds. The majority of large international managers are yet to launch a Shariah-compliant mutual fund due to concerns regarding costs, the discrepancy in Shariah standards, and the lack of third-party distribution, although a growing number manage discretionary mandates for high-net-worth individuals and family offices.
Various Islamic indices suggest that Shariah equity investments have performed on par with their conventional counterparts, but have not escaped the recent market turmoil, while sukuk (bond) products are still rare due to the illiquidity and scarcity of the underlying securities. As a result, assets in Shariah-compliant funds, despite having increased by 8% year over year as of September 2008, will likely end the year close to or below the 2007 level.
However, Cerulli expects that once markets stabilize, this industry can continue to expand at above 10% per annum, driven by the large amount of Islamic bank deposits, new products and asset classes, andincreased regulatory support from governments, such as that introduced to great effect in Malaysia.
“Nevertheless, assets in discretionary Shariah-compliant portfolios will continue to lag the retail market unless and until some large institutions, in particular the Middle East-based sovereign wealth funds,decide to invest in accordance with Shariah principles,” says Shiv Taneja, managing director and head of international research practice, Cerulli. “To do so, these institutions must be convinced that performance will not be compromised,” states Shiv Taneja, Managing Director and head of Cerulli’s international research practice.”
L.D.