Q&A with Shukr Investments: Finance with a conscience

Salaam Gateway spoke to Omar Bassal, CFA, founder and Chief Investment Officer of Shukr Investments, about impact investing – the ability to generate financial return while having a positive social or environmental impact.

Founded in 2013, Sharia-compliant Shukr Investments is a global public equity firm with a presence in the US and Abu Dhabi; has tens of millions of dollars under management and is a signatory to the United Nations (UN) principles for responsible investment. According to Bloomberg, the Shukr Global Equity Fund’s performance over three and five-year periods rank in the top 10% of offshore public equity funds effective end-February 2022.

Salaam Gateway (SG): What were the Shukr Investments highs and lows in 2021?

Omar Bassal: We had the largest growth in assets under management last year – definite high. The lows? The markets were challenging and we saw a major dispersion of returns. When you have events like COVID-19 or (the) Russia (Ukraine conflict), equities go all over the place – more opportunity to make money. When everything’s calm, equities are highly correlated and there’s not as much prospect to differentiate.

Last year (oscillated) between these different regimes … and we only generated 3-4% positive net (when) we typically target a minimum 10%. However, for investors who have been with us since inception, our annualised return is about 18% net of fees and expenses. Our best year ever was 2020 with a 136% net return or 170% gross.

SG: From where is your growth coming?

Bassal: We opened the Abu Dhabi office to be near Middle East institutions and in the belief it will attract investors from Saudi Arabia, United Arab Emirates (UAE), Qatar and Kuwait. Currently, investor growth is happening in the US and we hope this will change.

SG: Are high investment returns and social impact mutually exclusive?

Bassal: The conventional view is you’ll secure a lower return if you have an environmental, social and governance (ESG) or social impact mindset. You’re only investing in specific types of companies and excluding other opportunities. Hence, the theory says your return will be lower … that’s wrong.

The shukr in Shukr Investments comes from the Quran chapter Abraham (number 14) verse 7. The English translation is if you show gratitude (shukr), God will undoubtedly cause increase. There’s a relationship between gratitude and increase.

We believe Shukr’s impact components, such as the ESG investment philosophy and charitable donations, show gratitude. We can do good and generate a high return if we show gratitude. If you consider our three-year performance, Shukr's funds annualised returns were 41% against 16% from the index – and better than 99% of the funds in our category. The bottom line – you don't have to sacrifice return to do good.

SG: What makes Shukr different in the Sharia-compliant investment world?

Bassal: The Islamic investment industry largely achieves Sharia compliance by applying negative screens when making investments and purifying part of the capital or gains derived from impure sources. (They) take a universe and remove alcohol, tobacco and gambling and apply financial ratio screens. We felt the negative screening approach is not the whole story. There is a religious principle that calls for enjoying good and forbid evil.

In this framework, most of the Sharia-compliant industry only forbids evil without focusing on enjoining good. We believe ESG investing is enjoining good because you favour companies doing good in terms of their stewardship of the environment; social contract with employees, suppliers and customers and their corporate governance. That’s why Shukr incorporated ESG investing. We also “enjoin good” by donating 50% of our performance fees to charity, allocated by our clients.

SG: What are your 2022 goals?

Bassal: To grow and deliver top-tier performance – no-one cares about the brand's mission if we generate bad returns. Equally, if we stay at our current level, despite an excellent performance, no-one will care either. My efforts have been on growing the assets because we aren’t on the radar screen of many investors, Sharia or otherwise.

SG: How does Shukr apply ESG principles in its investment selection?

Bassal: We work with the Swiss company RepRisk to evaluate companies we are considering. What I love about RepRisk is how they look at ESG investing – they look at what a company does rather than what it says. RepRisk looks at tens of thousands of publications in 23 languages daily, using artificial intelligence (AI) tools to flag, categorise and track a company’s coverage over an extended period.

SG: What is your competitive advantage?

Bassal: Our strategy – one we believe can generate top-tier performance and (make a) social impact achieved through charitable contributions (in line with recognising) the relationship between giving back to society and our performance. We demonstrate this by being successful, because then people will ask what Shukr is doing differently. Realising the value we bring through giving back, our success may encourage other companies to adopt a social impact component. That's how you make a change – because people love to copy in the business world.

SG: How do you distribute the donations?

Bassal: This year, for the first time, we are giving clients the choice. Investors allocate donations across a set of pre-screened charities, ensuring the total equals 100%. (US-based charitable organisation) Charity Navigator helps us identify (worthy) organisations … it’s an independent source for evaluating charities, looking at size, impact and the amount allocated to donations versus administration spend.

The charities to which we donate are grouped under five causes – poverty, education, healthcare, environment and well-being – with many tying into the UN’s Sustainable Development Goals (SDG). Equally, many of the selected charities aren’t Islamic organisations – we need to positively impact society not just Muslims. We're supposed to be a model for everyone.

SG: Which industries do you consider the most advanced in the ESG realm?

Bassal: The more significant factor isn’t the industry, but the country. In having separate company reports disclosing their impact, Europe is the most advanced region in applying ESG standards. The US is pretty far behind, but catching up. (It) is more diversity-focused, reporting on issues like gender and racial inclusion.

The emerging markets are complicated. The more advanced companies will maybe have one page about ESG, but most emerging markets are nowhere near the levels of Europe or the US.

SG: What opportunities do you see for Islamic Finance in the near future?

Bassal: Being commodity-driven, both Southeast Asia and the Middle East heavily influence the Islamic finance industry, although innovative fintech companies are emerging from Europe and the US. We have a positive view on commodities for the foreseeable future and believe these regions will see significant cash inflows that will (boost) the Islamic finance industry.

Investors in this industry are still primarily Muslims who share a common values system. However, when talking to non-Muslim investors, we’ve found agreement about our approach. Remove the “Islamic” label from our work and I believe significant segments will want to invest and give back to society as we practice it.

Hence, if we can generate as good or better returns than what most investors are receiving, they will migrate to Shukr’s model simply because they care, not only about how they grow wealth, but the impact that growth has on the world.

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