UK: The multi-billion Western gateway for Shariah equity capital

• Leading Western hub for Islamic finance, with over US$14 billion in AuM
• Strong bias for growth-oriented equities, which command over 83% of assets
• HSBC and Aegon manage UK’s largest, highest-performing Shariah funds

Overview

The UK has firmly established itself as the leading Western hub for the Islamic finance industry, a distinction earned through decades of regulatory innovation and its role as a key capital market gateway.

While the domestic Shariah fund market remains significantly smaller than that of European powerhouses like Türkiye, the UK plays a crucial, specialized role. It acts as a sophisticated listing and administration jurisdiction, attracting substantial foreign direct investment, particularly from GCC countries.

The industry's health is reflected in its overwhelming focus on growth-oriented equities, which constitute over 83% of its assets, and the notable concentration of large, high-performing funds managed by global players like HSBC and Aegon.

This market structure positions the UK not merely as a local market, but as a crucial bridge facilitating Shariah compliant capital flows worldwide.

Asset spread

The UK Shariah fund industry maintained a substantial position among its regional peers through the third quarter of 2025, according to data compiled by the IFN Investor Funds Database.

Europe’s Shariah market as a whole, totaling approximately US$61.42 billion in AuM across 367 funds, was heavily influenced by two major poles for the quarter: Turkiye and the UK.

The UK, often lauded as a Western hub for Islamic finance, commanded US$14.41 billion in AuM spread across 82 dedicated funds.

This concentration of assets positioned the UK as the second-largest player in this regional group, accounting for 23.5%, or nearly a quarter, of the total assets recorded.

By a significant margin, the overall regional landscape for Europe was dominated by Turkiye, which accounted for US$44.62 billion, or roughly 72.7% of total AuM. Turkiye also operated a vast majority of the vehicles, with 253 funds, establishing its leadership through sheer volume.

This creates a competitive dualism, where the UK’s smaller count of funds manages a globally recognized and substantial portfolio, while Turkiye exhibits expansive growth driven by a high volume of local fund offerings.

Minor contributions came from funds from elsewhere that are domiciled in Luxembourg which held US$1.93 billion across 13 funds, and others in France, Germany, Guernsey and Ireland collectively managing US$452.15 million across 19 funds.

Chart 1: UK Shariah fund industry vs European peers by AuM, fund count

The UK's domestic Shariah fund landscape exhibits a strong preference for equity-based instruments.

Of the total US$14.41 billion in AuM, equities represented the core allocation, commanding US$12.03 billion across 52 funds, which constitutes approximately 83.5% of the national total.

The remaining assets are distributed across various Shariah compliant vehicles, with real estate being the largest non-equity component at US$1.58 billion, held within a smaller pool of two funds.

Commodities followed with US$486.27 million in AuM across 15 funds, while fixed income instruments and mixed assets were far smaller, holding US$222.73 million (two funds) and US$79.03 million (10 funds), respectively.

The market structure thus reflects a significant bias toward growth-oriented equity investments, with specialized real estate and Sukuk funds providing diversification.

Chart 2: UK Shariah funds by asset class, AuM and fund count

Largest UK Shariah funds

Further analysis of the top 10 largest Islamic funds highlights the industry's concentration and the dominance of a few international financial powerhouses.

HSBC Asset Management, in particular, managed six of the 10 largest funds, cementing its position as a key institutional player. The largest single Shariah compliant vehicle in the UK was the HSBC UCITS Common Contractual Fund - Islamic Global Equity Index Fund - Class A2CGBP, which alone commanded US$4.62 billion in AuM.

This fund, combined with several other HSBC equity-focused offerings, underscores the reliance on global equity indexing strategies within the UK market.

The list also featured specialized products, most notably The Royal Mint Responsibly Sourced Physical Gold ETC, managed by HANetf Management, which was the second-largest product at US$1.58 billion. This demonstrates an active appetite for commodity-based instruments in the UK Islamic finance ecosystem.

Table 1: Largest Islamic funds in the UK

Top performing UK Shariah funds

In terms of 2025 third-quarter performance, the top-performing Shariah funds were led by the Aegon HSBC Life Islamic Global Equity Index, delivering a robust 19.5% return.

The concentration of top performance closely mirrored the concentration of AuM, with four of the top five funds being global equity index products managed by either HSBC Asset Management or Aegon Asset Management (which utilizes the HSBC index).

This strong showing by equity index funds – with returns hovering around 12.18% to 19.5% – suggests a highly favorable three-month environment for the underlying Shariah compliant global equity benchmarks.

A notable exception to the equity dominance was The Royal Mint Responsibly Sourced Physical Gold ETC, which secured the second rank with a return of 16.32%. This further emphasizes the cyclical strength of gold and commodity investments within the UK's Shariah compliant landscape during this period.

Table 2: Top performing Shariah funds in the UK

Outlook

The outlook for the UK Islamic funds sector remains positive, bolstered by ongoing government support and a supportive regulatory environment.

Fitch Ratings anticipates steady growth, driven by continued foreign direct investment, particularly from the GCC, and the increasing global role of the London Stock Exchange as a key listing venue for Sukuk.

Key policy developments will further cement this growth: the UK government is on track to introduce its Shariah compliant Alternative Student Finance product, based on the Takaful principle, from the 2026/2027 academic year.

This initiative is expected to boost financial inclusion and remove a longstanding barrier to higher education for many Muslim students.

While the domestic retail market remains a niche segment, the sustained institutional commitment – evidenced by the conversion and expansion of Islamic banks in the UK – and the nation's legal and capital markets expertise position it to successfully navigate competition and continue leading the Western Islamic finance landscape.