Frost & Sullivan have recently published a report on the Islamic asset management industry in which they claim that Islamic asset management is gaining interest among investors as an avenue for alternative investment. They say that the focus is intensifying on new categories of Islamic product offerings such as hedge funds, fund of funds, index funds and exchange traded funds. They believe that growing awareness among investors about the benefits of asset diversification and their willingness to consider unconventional investment options are factors helping to boost Islamic fund assets.
The report suggests that the Islamic asset management industry is, however, challenged by a lack of depth in the GCC capital market, causing inefficiencies in portfolio management. Operational efficiency needs to be ramped up to attract institutional investors. Funds are also likely to be exposed to regulatory, political, legal, economic, and financial risk in cross-border investments. Efficient management of these risks is vital for keeping costs low and funds profitable. The Islamic fund industry is highly fragmented and high management fees prevent the achievement of economies of scale. Proper audit controls must be established to ensure that investments have been done in line with Islamic principles and profits are made based on Islamic investing. Moreover, distribution channels must be expanded to reach out globally. The full report is available from Frost & Sullivan. (1-Apr-2011)
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