Global demand for Sharia-compliant pension funds could be as high as US$190 billion, a new report says.
Islamic banking customers in countries such as the UAE and Saudi Arabia are increasingly turning their attention to their retirement plans, the report from EY's Global Islamic Banking Center said.
Much of this capital is currently parked in conventional pension plans due to a lack of viable options. However, the growth and development in recent years of Sharia-compliant capital markets presents a new opportunity for pension funds, said Ashar Nazim, a global Islamic banking partner at EY.
“With the maturity of the sukuk market and Sharia-compliant equity indexes, as well as technology available to screen conventional indexes to carve out Islamic sub-indexes, there appears to be sufficient assets available for many … pension funds to take the first step towards Sharia-compliant propositions,” he said.
The level of outstanding global sukuk stood at $275.2bn at the end of August, according to figures from Malaysia’s finance ministry.
Sukuk issuance is expected to exceed $100bn this year, Standard & Poor’s said.
Demand for such Sharia-compliant retirement offerings was particularly high in fast-growing emerging markets, including the UAE, Malaysia and Saudi Arabia, said EY.
“There is a clear preference by individuals in these markets to manage their financial affairs in a Sharia-compliant manner. This segment represents anywhere between 10 and 70 per cent of the overall market,” said Mr Nazim.
Such demand provided opportunities for financial institutions to diversify products and strengthen fee income, he added.
However, the relatively small size of the global Sharia-compliant asset management industry means that the growth of Sharia retirement funds was likely to be “a gradual evolution,” said EY.
The most practical way to offer such plans was to partially transform existing pension funds, carving out Sharia-compliant tranches, rather than starting from scratch.
“This carving out further involves the valuation of pension funds’ assets as of the date of transformation, which in turn may have legal, financial and tax implications,” said Mr Nazim.
Key considerations for fund managers considering Sharia-compliant offerings include whether to allow existing members to transfer their existing balance to a new Islamic offering, or to only allow future contributions to be added to the offering, according to EY.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Started: January 2021
Founders: Sanad Yaghi, Ali Al Sayegh and Shadi Joulani
Based: UAE
Number of employees: 140
Sector: B2B Vertical SaaS(software as a service)
Investment: $5.2 million
Funding stage: Seed round
Investors: Global Founders Capital, Colle Capital Partners, Wamda Capital, Plug and Play, Comma Capital, Nowais Capital, Annex Investments and AMK Investment Office
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Dialysis is a way of cleaning your blood when your kidneys fail and can no longer do the job.
It gets rid of your body's wastes, extra salt and water, and helps to control your blood pressure. The main cause of kidney failure is diabetes and hypertension.
There are two kinds of dialysis — haemodialysis and peritoneal.
In haemodialysis, blood is pumped out of your body to an artificial kidney machine that filter your blood and returns it to your body by tubes.
In peritoneal dialysis, the inside lining of your own belly acts as a natural filter. Wastes are taken out by means of a cleansing fluid which is washed in and out of your belly in cycles.
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