Ceruli: Size of Shariah-compliant companies often overstated

By Habhajan Singh
The size of the Shariah-compliant industry is often overstated, claims a United Statesbased research outfit in a report on Islamic asset management. Cerulli Associate estimated the total mutual fund figure in Islamic finance to be US$35 billion (RM124.72 billion), and if mandates were included, the total figure would be US$65 billion.
"Equities are the dominant product in Shariah-compliant mutual funds — more than conventional products — these tend to be locally invested. "Retail and mass affluent individuals are the majority interest in Shariah-compliant funds," the research outfit said in a recent report entitled "Shariah Investing: Market Sizing and Analysis".
As at September 2008, data from the Securities Commission (SC) indicates that the total net asset value (NAV) of Islamic-based funds in Malaysia stood at RM17.17 billion, or 11.6% of the overall total of RM148.44 billion, for both conventional and Islamic-based funds.
Most unit trust companies in Malaysia offer some variant of Shariah-compliant funds, including companies ING Funds Bhd, AmInvestment Services Bhd, CIMB Wealth Advisors Bhd, HLG Unit Trust Bhd and MAAKL Mutual Bhd.
As at mid-August 2008, Shariah-compliant unit trust funds chalked up sales totalling RM2.96 billion, a growth of 84% compared to the year before, according to a speech by SC chairman Datuk Zarinah Anwar.
Providing one example, the Cerulli report dated December 2008 said there is US$786 million invested in balanced funds, with US$189 million invested in the Middle East, a region that is particularly receptive to such fund types. In Asia, it said Shariahcompliant balanced funds account for US$528 million of assets, adding that in most cases, these funds have a regional or local, rather than a global, mandate.
"While there are a large number of Shariah balanced funds, in asset terms they tend to be small, with not one boasting more than US$100 million under management. "The largest, from Public Mutual, has just US$96 million under management, and the largest from the Middle East, the Amanah Balanced Portfolio from HSBC/SABB, just US$46 million," it said.
As at Dec 31, 2007, data from Securities Commission (SC) shows that total asset under management by licensed fund management companies in Malaysia increased by 44.13% to RM236.98 billion as compared to 2006, adding that unit trust funds continued to be the main source of assets under management, reaching RM169.41 billion as at end-2007 as compared to RM121.77 billion as at end-2006.
As at Nov 30, 2008, SC data shows that there are 148 Islamic-based approved funds and another 432 conventional funds. As part of efforts to spur the Islamic fund management, Malaysia has been making available a range of tax and other incentives for companies to set up shop here.
The first batch of Islamic fund management licences were given out in April 2008 to Kuwait Finance House, Singapore's DBS Asset Management and CIMB Principal Islamic Asset Management.
In November, two Islamic fund managers, India's Reliance Asset Management and Kuwait's Global Investment House, became the latest global players to receive approval to operate in Malaysia.
(This story appeared in The Malaysian Reserve on Jan 12, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)