CASE STUDY
Shariah-compliant Global Real Estate
Engagement at a glance
| Client Country/Type: | Asian Financial Institution |
| Year: | Q1 2022 |
| Asset Class: | Real Estate |
| Mandate Size: | USD 250 million |
| Mandate Geography: | Global |
| Structure: | Direct pooled funds and separately managed accounts | Service Provided: | Shariah-compliant manager selection | Investment Objectives: | Targeted IRR of 5.5%–7.5% p.a. |
Client-specific concerns
This investor, an Asian financial institution, recognized that it had a material underweight to Real Estate and wanted to look at appointing a top-tier manager or managers to assist in the diversification of its exposure. Finding a manager with a strong, demonstrable track record in global Real Estate—combined with experience investing Shariah mandates—was a challenging process; very few managers have compelling track records in both. Conventional diversified Real Estate funds traditionally have some exposure to retail and hospitality sectors, which do not fit easily or comfortably within a Shariah investment framework. Managers also had to be willing to consider their use of leverage, which often requires restructuring to achieve full Shariah compliance.
Outcome
- Exploring the universe of potential solutions: bfinance began working with this client in early 2021 to help its internal team explore various options to achieve Shariah-compliant Real Estate exposure, including direct separately managed accounts, private REITs and combinations of pooled funds and Real Estate funds of funds that would deliver ‘core-plus’ return patterns (high single-digit returns and a 4% yield).
- Analysing and refining the search process: based on the educational work done on the client’s behalf, its team decided to focus on three key managers, with one global solution complemented by specific allocations to the US and Asia Pacific.
- Providing flexibility and adaptability: in addition to extensive pre- and post-search work, bfinance unearthed solutions that the client hadn’t previously encountered, offering an iterative and flexible process that allowed some solutions to be fast-tracked (due to probable fund closings) and bringing in others as they became available late in the search.
- Creating a ‘deep bench’ of prospective managers: given the client’s long lead time for this search, bfinance ensured that it could identify strong ‘back-up’ managers for each of the client’s preferred solutions.
- Negotiating significant discounts on fees: leveraging its proprietary database and extensive experience negotiating managers’ fees on behalf of its clients, bfinance was able to achieve significant fee discounts for the client on several solutions.