CASE STUDY

Shariah-compliant Private Income Strategies

Middle Eastern Asset Manager | 2020

Engagement at a glance

Client Country/Type: Middle Eastern Asset Manager
Year: 2020
Asset Class: Diversified Private Income, including Trade Finance and Equipment Leasing
Mandate Size: USD 100 million
Mandate Geography: Global
Mandate Type: Segregated accounts and pooled funds
Service Provided: Manager selection
Investment Objectives: Net returns of 5%–8% p.a.

Shariah-compliant Private Income Strategies

 

Client-specific concerns

The client, a leading Middle Eastern asset manager, was planning to launch a new fund with the aim of providing investors with a diversified portfolio of income-generating assets. The company enlisted bfinance to search for the most compelling investment managers able to deliver Shariah-compliant solutions across Trade Finance, Equipment Leasing, and other Private Income strategies. The client retained the top five managers identified by bfinance and successfully launched one of the first multi-asset publicly traded funds in the region.

For the Private Income allocation of the listed fund, the client was looking for net annual returns in the region of 5%–8%, primarily driven by quarterly distributions. The client was also focused on swift deployment of assets as a key requirement to limit any cash drag. Given the client’s desire to build a diversified fund from inception of the listed product, the search covered a broad range of Private Income strategies and sub-strategies across a variety of developed economies and emerging markets.

The client already had a handful of managers on its radar—particularly players renowned in the region for their Shariah capabilities—however these names represented only a fraction of the universe of eligible managers. Interestingly, some of them were starting to show signs of underperformance as a result of the Covid-19 pandemic, so the search was designed to reach as broad a spectrum of alternative managers as possible.

Outcome

  • Tailoring a bespoke and inclusive search: the bfinance team targeted managers with existing Shariah-compliant capabilities as well as managers that were deemed potentially willing to develop a Shariah-compliant solution. Using this approach, the client was able to seed two first-time Shariah-compliant funds and did not have to compromise on manager quality to meet its Shariah requirements.

  • Modeling potential combinations: bfinance provided guidance on how various strategies could be combined to enhance portfolio diversification.

  • Providing knowledge transfer: due to the wide-ranging nature of the search for diversified sources of income in private markets, bfinance worked alongside the client to provide knowledge transfer throughout the search process, particularly around specific asset class risk factors and adequate mitigation tactics.

 

Our specialist says

  • This complex mandate had a successful outcome in part because we adopted an inclusive approach: instead of limiting the search to a small subset of managers with established Shariah capabilities, we engaged managers offering ‘best-in-class’ conventional strategies and encouraged them to design Shariah-compliant solutions. Casting a net wide allowed us to identify a broad range of strategies that displayed ongoing resilience in the face of the Covid-19 pandemic. If anything, the challenging market environment reinforced the relevance of the client’s prospective multi-asset income fund by highlighting the importance of risk factor diversification and yield premium generation.

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