Faith-based capital moves beyond preservation as Shariah investors professionalize

Charities and Waqf entities are increasingly turning to professional Islamic asset management services, as a growing share of faith-based capital moves beyond value preservation toward longer-term investment strategies.

Traditionally focused on safeguarding principal, many of these institutions are now integrating structured, multi-year investment approaches, following patterns observed among other faith-based investors globally.

“Islamic charities, Waqf institutions and religious endowments are increasingly emerging as a distinct source of long-term Shariah compliant capital,” Stephen Rothwell, a partner at Sarasin & Partners, told IFN Investor.

“Much like other faith-based investors, many began with narrowly defined capital-preservation mandates before progressively integrating structured, long-term investment activity. This capital is increasingly sourced from donations, legacies and Islamic wills, reflecting a growing willingness to prioritize sustainable growth over immediate returns.”

This trend is evident across multiple markets. The Islamic Solidarity Fund for Development and the UN High Commissioner for Refugees’ Global Islamic Fund for Refugees, for example, have engaged Franklin Templeton to manage endowed capital.

In Malaysia, Yayasan Waqaf Malaysia has partnered with Kenanga Investors and Eq8 Capital on Waqf-featured investment funds including the Kenanga Waqf Al-Ihsan Fund and has launched the world’s first Waqf ETF.

These initiatives actively deploy capital across diversified Shariah compliant instruments, demonstrating how faith-based endowments are evolving from passive stewardship to strategic, long-term investment.

This evolution is mirrored by a broader shift among family offices managing multi-generational Muslim wealth. As these investors professionalize governance structures and investment frameworks, expectations around Shariah compliant portfolios are changing.

Standardized Islamic funds and index-based solutions remain relevant but are increasingly viewed as insufficient by investors seeking greater control over risk, liquidity and portfolio behavior.

The shift also highlights the limitations of index-based Shariah products. While efficient, index rules and market-cap weightings can embed sector biases and risks that may not align with family office objectives.

“Index rules inevitably shape risk in specific ways,” Stephen noted. “A discretionary mandate allows those trade-offs to be addressed more deliberately.”

Managing diversification within Shariah constraints has become a more intentional exercise. Bespoke mandates expand the opportunity set through thematic equity investments aligned with long-term structural trends, combined with diversified Sukuk exposure across issuers and geographies. Commodities and cash management tools may also be incorporated to enhance portfolio resilience.