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Wednesday, 29 August 2012

Islamic funds going cross border with UCITs (Undertakings for Collective Investment in Transferable Securities)

Kuala Lumpur-based CIMB-Principal Islamic Asset Management (CIMB-Principal Islamic), a joint venture between the CIMB Group and Principal Global Investors (PGI), has set the stage for other Islamic fund managers in their bids to penetrate the overseas markets.

Its three UCITS-compliant Islamic equity funds – which it launched early this year and which invest in global emerging markets, the Asia-Pacific ex Japan and the Asean region, respectively – are designed for cross-border distribution within Asia. 

Demonstrating UCITS’ potential

They came after the Central Bank of Ireland, via a memorandum of understanding between itself and the Securities Commission Malaysia on November 4 2011, approved the establishment of the Dublin-based CIMB-Principal Islamic Asset Management (Ireland) Public Limited, a joint venture specifically designed to distribute Islamic UCITS funds globally. 

While the UCITS platform has been used to market Islamic funds to European investors, this is the first time it is being done in Europe. In a way, CIMB-Principal Islamic is paving the way for other fund managers to use this platform to market Islamic funds globally.

“We have opened the door for other Malaysia-based fund managers to establish a UCITS platform in Ireland,” says Datuk Noripah Kamso, chief executive of CIMB-Principal Islamic. “The UCITS funds were established to develop a visible performance track record and make it easier for global investors to place their money with CIMB-Principal Islamic. These funds are recognized beyond Europe and meet the needs of institutional and retail investors from many jurisdictions. This is an important step in the development of Malaysia as a centre for Islamic fund management.”

Targeting private banking clients

CIMB-Principal Islamic has been building their overseas networks for marketing Islamic funds.

It has launched marketing activities to Muslim investors in Germany where, Noripah says, there are 4.1 million Muslims, the bulk of them of Turkish descent.

Noripah shares that CIMB-Principal Islamic is dynamically marketing Shariah funds to private-banking clients based in Geneva as an alternative investment for diversification and risk management.

“The private bankers in Geneva that are serving Middle-Eastern investors have shown a keen interest. Following the Arab spring, they are pushed to understand what is being offered as an underlying in the whole story of Islamic investments, because there has been a flight to safety from GCC countries to Geneva and London,” Noripah says.

With the launch of its UCITS platform, CIMB-Principal Islamic is expected to strongly market its Islamic funds to European markets. Noripah explains that CIMB-Principal Islamic has crafted a business model for each different target market for building its Islamic funds business.

First, the institutional business – direct mandates from pension funds, sovereign wealth funds, takaful and central banks. Second, the high net worth business – targeting individual investors in GCC countries and family offices and, third, a part of the mass market.

“For that third market segment, we have to come out with a global fund platform – which is why we have launched the Islamic UCITS – but we cannot sell the funds all by ourselves, we have appointed other banks and fund distributors to reach farther,” Noripah says.

If the funds are authorized in one European Union (EU) member state, it can be distributed in any other EU member state without the need for any additional authorization. UCITS-compliant funds are distributed in a large number of countries, not just in Europe, but also the Americas, the Asia-Pacific, the Middle East and Africa.

The funds will eventually be registered and distributed in seven jurisdictions: the UK, Switzerland, Germany, Saudi Arabia, the United Arab Emirates, Bahrain, and Singapore.

Having the funds on this platform means that institutional and retail investors globally will be able to see CIMB-Principal Islamic’s asset management track record. If the funds do well, not only will this attract investment into those funds but institutional investors may also appoint CIMB-Principal Islamic to manage their discretionary mandates as well.  

(The Asset / 28 August 2012)

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