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US fund managers focus on raising Shariah-compliant capital

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US fund managers focus on raising Shariah-compliant capital

Ocorian, a global leader in corporate and fiduciary services, fund administration and capital markets, is reporting an increase in US fund managers approaching it to help raise Shariah-compliant capital.  However, in order to be successful, they need to focus more on navigating structural and cultural challenges.

Ocorian, a global leader in corporate and fiduciary services, fund administration and capital markets, is reporting an increase in US fund managers approaching it to help raise Shariah-compliant capital.  However, in order to be successful, they need to focus more on navigating structural and cultural challenges.

Marc van Rijckevorsel, Head of BD for Corporate & Fund Services, Americas Region at Ocorian said: “The global Islamic finance market has been growing strongly, buoyed by a rising Muslim population seeking Shariah-compliant financial instruments and the industry's ethical credibility. It recorded a compound annual growth rate of 7.8 per cent between 2014 and 2019 and it is projected that Islamic finance assets will rise to $3.69 trillion by 2024, with growth driven by both Muslim and non-Muslim countries.

“Through our office in Dubai, we see a growing number of US fund managers increasing their fundraising efforts in the region, including hiring locally to promote investor relations. The US is still seen as top of the bill for sophisticated, specialist fund managers and so is a favoured destination for capital rich investors from Malaysia and the GCC region, especially those from Saudi Arabia, Kuwait and the United Arab Emirates. These investors are seeking yield for big ticket items, including in the US.

“However, they have limitations on the investments they can make in order to comply with Shariah principles, which not only rules out investing in things like alcohol and gambling, but also prohibits the receipt of interest payments. That means GCC investors tend to favour real assets in property and infrastructure.”

Ocorian says that since these investors need to comply with Shariah principles, a US fund manager can opt to set up a Shariah-compliant fund structure to specifically attract investors that require this, but it says it is not essential for them to go down this route. Ocorian is increasingly seeing US fund managers attracting investors and then setting up a specific feeder structure tailored to enable the Shariah-compliant investor to invest into the fund.  It says approximately 80 per cent of the time these investments are structured that way, with the legal adviser designing a structure using SPVs in for example, Cayman or Jersey to facilitate investment into the main US or Cayman fund structure.

Ocorian’s specialist Islamic finance team operates globally and has a strong understanding of Shariah-compliant structures and can incorporate and service bespoke Islamic finance backed structuring solutions for a broad range of asset classes. Its clients have successfully launched a range of Shariah-compliant structures, acquiring assets across the UK, Europe and the US.

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