Global Islamic fund assets stagnated at USD52.3bn in 2009, remaining at almost the same level as the USD51.4bn posted in 2008, the fourth annual Ernst & Young Islamic Funds & Investment Report released at the World Islamic Funds and Capital Markets Conference shows.
In contrast, the global conventional mutual fund assets under management exhibited signs of recovery from their lows of USD19trn in 2008, reaching USD22trn in 2009.
Sameer Abdi, Middle East head of Ernst & Young’s Islamic financial services group, says: “This trend is reflective of a distinct shift in investors’ preferences, and requires Islamic fund managers to adapt their strategies and operating models accordingly to meet the new levels of expectations.”
The research reveals that only 29 new Islamic funds were launched in 2009, almost offsetting the 27 Islamic funds that were liquidated during the same period. New Islamic funds launched were at their highest number ever at 173 in 2007. Since then, this number has declined dramatically.
The overall Islamic asset management industry, which includes funds and Islamic investment accounts, touched USD292bn or 31.1 per cent of the total industry assets. This also underlines the predominance of investor deposits with banks, says Abdi.
The silver lining for the industry is the continued strong growth in the overall Shari’a sensitive investable assets.
Ashar Nazim, director at Ernst & Young’s Islamic financial services team in Bahrain, says: “Shari’a compliant investable wealth pool grew by 20 per cent to reach USD48bBn in 2009. In 2008, this was USD400bn. The GCC remains the single biggest contributor to this growing wealth pool. It clearly represents substantial untapped opportunities for local and international players who can understand and respond to their investors’ evolving needs.”
During 2009, there was a shift away from fund investments in traditional asset classes, such as equities and real estate funds, as a number of new alternative asset classes including Shari’a compliant ETFs and hedge funds were launched. No real estate focused funds were launched in 2009 compared to ten in 2008 and 18 in 2007. The lack of investor confidence led to placing higher proportion of deposits with banks, rather than investing in funds.
The report reveals that almost 70 per cent of Islamic fund managers are struggling to build scale and have under USD75m in AUM, while 55 per cent have less than USD50m AUM. On the other hand, average fee charged by Islamic fund managers have dropped by almost 25 per cent since 2006, and are expected to continue at this level for the foreseeable future.
“Profitability remains under tremendous pressure especially for smaller fund managers. Clearly, shake-outs and consolidations are the way ahead and will be in the best interest of the industry’s long term prospects,” says Ashar.
