Shariah funds seeking higher returns could benefit from tapping into upcoming major infrastructural projects in the MENA region, alternate assets-focused manager Amwal Global Partners shared with IFN Investor.
Partner and Co-head of Fixed Income Sharif Eid noted that returns from Islamic investments have somewhat plateaued in recent years, with only low single-digit upside value potential in asset classes currently available and offered in the public domain.
Stating that a mindset shift is needed for an investor seeking income-generating assets that can yield returns in double digits, Sharif said the challenge is how to obtain a long-term portfolio of “relatively decent quality that is not purely equities or purely high risk” in emerging markets.
“Looking at the main Islamic finance hubs like the GCC, Malaysia and Indonesia, that have robust banking systems, note that they do not have many non-traditional lenders with large capacities.”
Describing the landscape as ripe for private investors, especially those who had been reluctant to invest earlier as they were unsure of the projects being Shariah complaint, Sharif said this pool of largely untapped funds could also help bridge the funding needs of SMEs striving for growth.
With Amwal having access to private credit funds, along with private equity and infrastructure funding lenders, Sharif said: “We see at least one or two new SME requests a week that are in need of funding, whether it’s acquisition finance, growth capital, and receivable financing.
“They come to us as their diverse set of requirements does not fit with the banks’ commercial funding requirements and SMEs find themselves in a universe where capital doesn’t exist.”
By assisting these corporates, across sectors from agriculture to fintech to logistics, Sharif said profit rates would be higher – especially due to the need to counter the risk of these investments being illiquid.
With such opportunities, Sharif projected the Shariah compliant private equity space will be a big growth area in the next five years.
“It would be more accurate to say that it’s reaching an inflection point with projected high growth. A key driver of private equity activity in the GCC region has been the change in the strategy of sovereign wealth funds for a stronger focus on the development of their local economies.”
As this has resulted in the supply of capitals overall, Sharif expressed optimism about the growth of private financing opportunities within the Islamic landscape.
“Private credit globally will continue to be the primary beneficiary of the new rate environment that we are in. The advantage of uncorrelated returns that also benefit from the pick-up of the illiquidity premium, make a compelling investment case. We think the opportunity is even greater for Islamic finance and private financing markets.”
