Growing appetite for Islamic wealth

Soaring oil markets and booming economies in the Middle and Far East are multiplying the numbers of Muslim HNW individuals world-wide and boosting private client demand for Sharia compliant investments. According to Usman Ahmed, head of Global Islamic Banking at Citi, 15 per cent of assets under management at the Dubai International Financial Centre in 2007 came from private clients. More generally, Scorpio Partnership estimates that 5 per cent of total HNW assets worldwide are aligned to Islamic interests, equivalent to some $2, 000bn (E1,275bn). This has sparked a keen interest on the part of global organisations such as HSBC’s Amanah bank to roll out products specifically designed for this market. In turn, an increasing number of HNW Muslim customers are turning to private banks to invest their assets. HSBC Amanah itself now has wealth management teams in New York, London, Riyadh and Dubai. A wide variety of other banks are also in the Sharia compliant market. The key players are shown in the table below. New players are also emerging. NBK (National Bank of Kuwait), the third largest bank in the Arab world, is planning to establish an Islamic private bank in Switzerland in partnership with an anonymous Saudi bank. The new venture will target HNW Gulf individuals seeking to hold funds in Sharia compliant offshore accounts. Also, SEI, the outsourcing provider, has opened in the Dubai International Financial Centre following a period of active development including the launch of a series of Sharia compliant manager of manager equity funds in July 2007. The growing investment demand by HNW Muslims is tapping into a raft of innovations well beyond the plain-vanilla bond market where Sharia compliant investment originated. There are now compliant structured products, real estate funds, secured equity funds, and even hedge funds. Product innovation is now the name of the game. For example, HSBC Amanah, whose global head Nabeel Shoaib is based in Dubai, has developed a currency fund that generates Sharia compatible returns by trading spot foreign exchange.

The rise of Islamic finance is leading to healthy geographic competition for investment business. The Malaysian financial regulator laid out plans last month to make Kuala Lumpur a hub for Sharia private banking and asset management. The centre currently has 16 Islamic banks including Kuwait Finance House and Qatar Islamic Bank. The regulators have offered a string of incentives to persuade the banks to set up shop in the city in an attempt to build critical mass. In the UK, the government is particularly keen to cement London's position as a global gateway for Islamic finance, particularly as there are an estimated 1.8m Muslims living in the country–some 3 per cent of the population—and a further half million Muslim visitors each year. Ted Wilson is managing partner at wealth management strategy think-tank, Scorpio Partnership