UK asset manager Schroders launches Islamic Global Equity Fund

LONDON - Schroders, a UK-headquartered asset manager with £563.3 billion in assets under management, has launched a new Global Islamic Equity Fund.

The fund will give investors a diversified portfolio, its Lead Manager, Ashley Lester, told Salaam Gateway. 

The fund’s inception is part of Schroders' broader presence in Islamic markets, said Lester, who is Head of Schroders’ Systematic Investments. “For example, Schroders is active in Indonesia where we have a local equity fund,” he said.

The Schroders Systematic Investments (SSI) unit will manage the new fund. SSI is part of Schroders’ Product, Solutions and Quant division, and brings factor-based strategies to clients that include pension funds, sovereign wealth funds, charities and insurance companies.

The SSI unit uses quantitative approaches and has specific models. It has a sustainable multi-factor investment strategy and aims to invest in profitable and low volatility stocks, said Lester.

The Global Islamic Equity Fund will invest in a range of equities within the Dow Jones Islamic Equity Index.

 It aims to outperform DWJ Islamic Market World Equity Index over a three-to-five-year period, gross of fees. Due to regulatory requirements, Lester couldn’t disclose metric returns, but said that the fund is looking to outperform index.

 The Schroders Global Islamic Equity Fund has no target but its assets under management are already at £123 million, said Lester, adding that the fund will have an ongoing charge of 55bps (or 0.55%).

SHARIAH MATTERS

Amanie Advisors is providing external Shariah services, including advising and approving investment guidelines and selections for the fund. It will also provide Shariah guidance as necessary.

The firm will also conduct an annual Shariah audit of the fund and certify compliance to Shariah standards.

“Aside from the activities of certain companies and equities, there are other components to Shariah compliance which are more intricate including the level of corporate leverage,”  said Lester. 

To ensure Shariah compliance, impure dividends will be donated to charities nominated by Schroders in association with their advisors, said Lester.

CHALLENGES

Schroders’ journey in setting up the Islamic asset fund has not been straightforward.

“Establishing an authentic Shariah-compliant global equity fund has not been easy, it took us over a year,” Lester explained.

He noted that certain barriers to entry include regulatory approvals as well as internal best practice processes.

“At the same time, entering a new market segment and dealing with new investors takes a bit of time,” he added.

Additionally there were a few queries from the Financial Conduct Authority regarding the purification process as well as the protection rights of investors, according to Maya Marissa Malek, Executive Director and CEO of Amanie Advisors Global Office.

“Pre-existing arrangements with third-party service providers (custodians, depository, etc. as general examples) had to be reviewed in detail, which takes time and requires all parties to become familiar with the reasoning behind some Islamic finance principles,” said the Shariah expert.

She noted that with Schroders having gone through the FCA processes, there is scope for other larg institutional UK asset managers to establish Islamic equity funds.

 TARGET CLIENTS

There are only a few large conventional UK-based managers that have dedicated Shariah-compliant equity funds. Aside from dedicated desks at British Islamic banks, Arabesque, TAM Asset Management and Oasis Crescent are among asset managers that have Shariah-compliant funds.

Schroders will target independent financial advisors for its Global Islamic Equity Fund. The fund is also available to retail investors and will be distributed through intermediary channels and wealth platforms.

Lester said there are significant parallels between sustainable and Islamic investors.

“It’s notable that despite the opportunities in the market, Islamic investors are still underserved.”

(Reporting by Hassan Jivraj; Editing by Emmy Abdul Alim emmy.abdulalim@salaamgateway.com)

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