UCITS tapped for Islamic funds distribution
|Muller: Launching the three new UCITS Islamic funds is “revolutionary”|
A critical issue involving Islamic funds is that they are established with domestic investors in mind and are not sellable globally, thus limiting the investor base.
Their success is generally assessed on an individual market basis as they are more popular than conventional funds in markets with large Islamic populations such as Malaysia and Saudi Arabia.
While there have been attempts to market Islamic funds in non-Islamic markets such as Europe, these have been met with limited success partly because of the timing – the global economy is still struggling from the 2008 global financial crisis.
A trend however is emerging where some fund managers are seeing the potential for marketing Islamic funds cross-border in the Asia-Pacific and Asean using the UCITS (undertakings for collective investment in transferable securities) platform. While this vehicle has been used in the past for marketing Islamic funds to European investors, this marks the first time it is being done in this region.
On January 16 2012, Kuala Lumpur-based CIMB-Principal Islamic Asset Management (CIMB-Principal Islamic), a joint venture (JV) between the CIMB Group and Principal Global Investors (PGI), announced the launch of three Islamic UCITS funds designed for cross-border distribution in Asia.
Their introduction follows the recent approval by the Central Bank of Ireland of the establishment of the Dublin-based CIMB-Principal Islamic Asset Management (Ireland) Public Limited, a new JV specifically designed for distribution of Islamic UCITS funds in Asia and globally. The JV will act as an investment manager of Dublin-based UCITS Islamic funds.
Under the newly-launched platform, CIMB-Principal Islamic is registering three new UCITS-compliant Islamic equity funds investing in global emerging markets, Asia-Pacific ex Japan and the Asean region.
It’s not about size
In an interview with The Asset, PGI’s Singapore-based chief executive for Asia Andrea Muller describes the launching of the three new UCITS Islamic funds as a “revolutionary” development that paves the way for other Asia-based Islamic fund managers to establish and distribute UCITS Islamic funds beyond their borders.
“CIMB Principal Islamic has opened the door for other Malaysia-based fund managers to establish a UCITS platform in Ireland. 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,” Muller says.
She notes there were three hurdles that had to be overcome before the new Dublin JV came to fruition.
First was securing mutual recognition and cooperation between the regulators namely the Securities Commission Malaysia (SC) and the Central Bank of Ireland. There were several meetings between the representatives of the SC and the Irish central bank held at country-to-country levels intended to familiarize each party with the regulatory systems and standard levels for each jurisdiction. The establishment of the global funds platform was made possible following the signing of a memorandum of understanding between the SC and the Irish central bank on November 4 2011.
Second was getting approval from the Irish central bank for the Islamic JV to manage funds on the Dublin UCITS platform. Following this approval, the JV known as CIMB-Principal Islamic Asset Management (Ireland) Public Limited became the first Malaysian fund manager to be licensed on the Dublin UCITs platform.
Third was getting the approval for the three Islamic funds to be included on the Dublin-based UCITS platform for global distribution. These are: CIMB-Principal Islamic Global Emerging Markets Fund; CIMB-Principal Islamic Asia-Pacific ex Japan Fund and CIMB Principal Islamic Asean Equity Fund.
These funds will eventually be registered and distributed in seven jurisdictions including the UK, Switzerland, Germany, Saudi Arabia, Bahrain, the United Arab Emirates and Singapore. CIMB-Principal Islamic is the invest-ment manager and master distributor for the funds.
Each of the three funds has been seeded by the CIMB Group and PGI amounting to US$20 million (US$10 million each from CIMB and PGI) showing the commitment of the JV partners to this initiative, according to Muller who declined to provide a specific target fund size for each of the funds.
CIMB-Principal Islamic chief executive officer Datuk Noripah Kamso has however been reported as saying that the JV is targetting at least 200 million Malaysian ringgit (US$66.4 million) in total assets under management (AUM) for the three new Dublin-based UCITS funds by year end and that her firm will commence the management of the funds by February 2012.
|McCaughan: The guiding factor is the whole Islamic capability of the group|
PGI chief executive officer Jim McCaughan remarks that the guiding factor for the Islamic fund business is not the fund size but the whole Islamic capability of the group.
“In round numbers for our global emerging markets team which manages Islamic global emerging markets and Asia-Pacific strategies, these are subsets of our global emerging market portfolio. Our global emerging markets team has about US$7 billion to US$8 billion AUM. Five years ago, they told us US$7 billion to US$8 billion was their capacity but the markets today are much more liquid and larger than they were then. The view of the team is that they have capacity up to US$12 billion compared to US$7 billion to US$8 billion before. So they are open for business and open for expansion because the emerging markets have much more liquidity than they used to have,” McCaughan emphasizes.
Selling Islamic capabilities
In terms of distribution, the Islamic JV has its own sales team but will be using the network of both the CIMB Group as well, which covers 14 countries in Asia, and PGI which has a global sales team and manages money for institutions in about 60 countries.
“The Islamic JV, which has a small team, leverages the fund management capabilities and strengths of PGI and CIMB. The JV has its own portfolio managers for global sukuk, however, the JV’s partners sub-advise equities mandates. PGI sub-advises on the Islamic global, emerging market and Asia-Pacific equities mandates while CIMB Principal Asset Management sub-advises on the Islamic-Asean mandates. It is an effort by both partners. Shariah guidance is provided by CIMB Islamic. It is worth noting that PGI’s experience with its own successful UCITS funds platform in Ireland has helped to expedite the establishment of the Islamic platform for the JV. The Islamic JV was established in 2008 and its growth has been strongly supported by its partners,” Muller says.
Although the Islamic UCITS funds will be registered in seven countries in many markets in Asia, the Islamic UCITS funds do not have to be registered before they can be marketed to private banking clients and high net worth investors.
“The seven countries where the funds will be registered are just the start. The focus of distribution will be the Asean countries, the Gulf Cooperation Council countries and certain other markets in Europe. Singapore is merely the first jurisdiction where the funds were actually registered. Not all countries in Asia and Asean require registration to sell the funds, particularly to high net worth individuals and institutional investors. So the funds are basically a vehicle for the JV to sell its Islamic capabilities to institutional and retail investors in multiple markets,” Muller says.
While both Ireland and Luxembourg are well-regulated as UCITS-platforms, CIMB-Principal chose Ireland over Luxembourg because of its attractive tax regime and cost structure as well as the availability of strong and efficient service providers, McCaughan says.
“In Ireland, you also have a responsive regulator. In our experience, it is about how quickly you can get responses and how thorough they are and I would complement the Irish regulators on both grounds. The Swiss banks use Luxembourg a lot because of language skills, there are different reasons for using different places,” he adds.
CIMB-Principal Islamic Asset Management managed about US$750 million (2.7 billion renminbi) worth of funds in 2011, and is eyeing sovereign wealth funds and government pension houses globally to join its clientèle list.
Islamic funds grew to US$58 billion in 2010, achieving a 7.6% growth with the Islamic fund universe comprising of some 100 fund managers, according to a study conducted by Ernst and Young in 2011.