Islamic Asset Management - TIEF 2014
Lira PlusSeptember 2013Islamic Asset ManagementThe Rise of Islamic Mutual Funds as a Key Toolto achieve Individual and Institutional Financial ObjectivesNovember 20141
Development in Financial ServicesWealth preservation and growth are the key objectives in asset tManagementRetail andCorporateBankingCashWealthProfit2
Islamic Asset Management: a Molecular SystemState of the art and prospects: how the industry is shaping upSoA and ProgressSoA and ProgressFinancialMarketsReliance on core banking activitiesCross selling constraintsAdvent of conventional playersBusinessModelsIslamicAssetManagementCapital Markets structural devolpmentsMultiple financial hubsFast and friendly regulatory adaptationsClients(Value &Needs)SoA and ProgressServices&ProductsEvolving addressable marketDemographics and generational changesConflicting investment objectivesSoA and ProgressBanking driven solutionsRisk polarizationRising interest from non‐Muslim3
Are Religious Beliefs so important?Basic needs of money storage faces shortfalls even in Muslim CountriesCountryReligiosity*Adults with no account dueto religious reasons (%, age 15 Saudi it(*) Religiosity: Percentage of adults who responded affirmativelyto the question "Is religion an important part of your daily life?" in a 2010 Gallupp poll(**) Global Findex (Demirguc‐Kunt and Klapper 2012)Source: AZ Fund elaboration on Global Financial Development Report 2014, Islamic Banking Association4
The Economic Function of (Conventional) Asset ManagementWidening the scope of asset management as an intermediary functionThe Asset Management industry is an importantprovider of liquidity needed to ensure the functioningof the economy through a process of capital allocationthat makes individuals financial objectives to matchwith the capital requirements of sovereign, companiesand other individuals.5
The Wealth of Muslim Countries25% of world population vs. 2% of global banking assets6
The Wealth of Muslim CountriesA growing role in the European economic environmentMuslim Population (thousands, as % of total)2,8694.6%Muslim Population in Europe (as % of total)1,552 4,1195.7% 5.0%4,7047.5%4335.7%4755.7%Remittances (USD billion, as % of GDP)1,5832.6%1,0212.3%Source for all charts: AZ Global, PEW Research, Deloitte,World Bank
Redefining Islamic Asset ManagementEnabling the achievement of multiple economic and social objectivesIslamic Asset Management enables Believers toachieve their individual financial objectives matchingthe capital requirements of any sovereign, companiesand other individuals through the use of instrumentsthat ensure the respect of the highest sharia principlesof investment.8
Enabling Equal Investment OpportunitiesIslamic asset management elevates basic securities to the Sharia principles of investment InstrumentsIslamicAssetManagementCapital MarketsSharia compliant solutionsEquities (compliant)Broker & DealingSukukMutual FundsMurabaha (cash)Private Equity FundsCommoditiesPension Funds Derivatives9
Reading the Financial Markets with the ShariaIslamic asset management filters the conventional markets through basic principlesNumber of Stocks in DJ IndexesMarket Capitalizationon overall marketsCountriesSectorsUSD 23.2 trillionapprox 40%5810SectorsAlcoholTobaccoFinancial aFinancials: all the following should be less than 33%Total debt / 12 months trailing market capitalizationCash & interest bearing securities / 12 month traling market capitalizationAccounts receivables/12 month trailing market capitalizationSource: AZ Fund, S&P Dow jones Indexes (September 2014)10
From Single Instruments to (Islamic) Mutual FundsA key investment tool for the asset management industry(Islamic) mutual funds are (Sharia compliant)investment vehicles pooling (believers) individual,corporate and sovereign funds for the purpose ofinvesting in a common portfolio of (Sharia compliant)securities such as equities, bonds (Sukuk), moneymarket instruments and other assets.11
Multiple Benefits in Investing in Mutual FundsIslamic mutual funds adds Sharia compliance to all aspects of money managementConventionalMutual FundsProfessional ManagementAccess to MarketsDiversificationLower CostsLiquidityIslamicMutual FundsSingle Fatwa(one‐stop Sharia compliance checks)12
Islamic Investors Financial ObjectivesA “conventional” set of targets for Islamic funds’ investorsSource: Global Islamic Asset Management Report 2014, Lipper/Thomson Reuters13
The Rise of Islamic Mutual FundsStill a tiny industry by all standardsSource: AZ Fund, Global Islamic Asset Management Report 2014, Lipper/Thomson Reuters14
One of the biggest Opportunities in Asset ManagementMuslim countries show the lowest penetration of funds in local capital markets15
Natural Islamic Asset Management markets are challengingInvestment preferences are an impediment to a greater growth in local funds industriesInvestors Survey Return vs. Investment HorizonSource: Invesco (2011)16
Funds Inflows signals Investors Preferences are evolvingMoney market and Sukuk fund are at the forefront of the industry growthIslamic Funds – Asset Class breakdown (USD billion)Source: AZ Fund, Global Islamic Asset Management Report 2014, Lipper/Thomson Reuters17
Funds Inflows signals Investor Preferences are evolvingMoney market and Sukuk fund are at the forefront of the industry growthNew Funds Launches 2010‐201244.1%New Funds Launches 201362.3%Source: AZ Fund, Global Islamic Asset Management Report 2014, Lipper/Thomson Reuters18
Islamic Investors Financial ObjectivesEvolution of needs not always satisfied by market offeringYesterday: Financial needsToday: Financial Objectives19
Islamic Financial Services Developing along NeedsProduct mix is improving beyond basic banking servicesHigh:Tailored tospecific needsHajj savingsproductsAwqaf assetmanagementNovel PathLevel tTraditional roductsTakafulPersonalloansMortagesCredit nsProduct portfolioSophisticatedSource: AZ Fund elaboration on AT Kearney (“The Future of Islamic Banking”)20
Our Experience in Islamic Asset ManagementWell defined investment process compliant with the Sharia principlesHow a sukuk fund can fill the “risk” gapManaging a portfolio in compliance of Sharia principles ofinvestmentBuilding a profit objective through recourse to Islamiccapital marketsWhy everybody should invest in a sukuk fund21
Sukuk fills a “Risk Gap” in Islamic Asset ManagementFor too long Islamic investments have been constrained by a polarized risk profile 33.6% 14.7% 0.9%Source: AZ Fund, Thomson Reuters, Bloomberg (December 2011 – October 2014)22
AZ Multi Asset Global Sukuk: the World Largest Sukuk FundAzimut launched Global Sukuk fund in November 2013 aimingto provide a new diversification tool for Islamic portfoliosThe Fund Advisor is AZ Global, Azimut’s Turkish fundmanagement platformAzimut has appointed Amanie Sharia Supervisory Board tosupervise the compliance of the fund to the Sharia principles ofinvestmentThe Fund is currently distributed in Luxembourg, Italy andTurkeyThe Fund has Assets Under Management of approximatelyUSD100 million*, making it the largest UCITS sukuk fund in theworldThe Fund portfolio is invested in more than 45 USD sukukissues from around the worldSince the beginning of the year* the Fund has generated a3.5% return in USD (12.1% in EUR)(*) Bloomberg, AZ Multi Asset Global Sukuk sub-fund USD class, As of October 31st 2014.23
Azimut: A Global Asset Management PlayerFund managerFund AdvisorSharia Advisor24
Azimut: Turkish Asset Management PlatformCurrently the second largest independent asset management company with USD360m AUM100%AZ International Holdings S.A.Fund ManagementDiscretionary Portfolio Management60% 70%AZ Global Sukuk Fund Advisory Team25
Brief Over of AZ Global Sukuk fundA shariah compliant fund offering an efficient investment solution for the medium termSukuk& CashLimitedvolatility andPredominantlycorrelation toglobal marketsGCC and baha (cash)Yield Pick UpUSDActive durationmanagement onshort/mediumterm maturitiesGlobal Sukuk has an objective of quarterly profit distribution26
Shariah complianceAmanie Advisors, a global reputation in Shariah advisory supporting AZ Fund1Appointment of the Sharia Board AZ Fund has appointed Amanie Shariah Board to validate the compliance to theShariah for its investment strategy The Board has issued its fatwa on AZ Multi Asset Global Sukuk fund on April 15th 20132Investment Universe The Board has validated an investment universe comprised of almost 100 sukuk issues The validation has been granted upon the verification of compliance to the Shariahprinciples of investment for each individual issue.3Periodic Sharia Monitoring & Review The Fund’s portfolio and trading will be constantly monitored to ensure continuousadherence to internationally accepted Shariah principles A new sukuk issue or a newly introduced sukuk structure may be added to the portfolioonly after it is deemed as compliant by the Board.4Cash Placement and Custody Cash will be placed in non‐interest bearing accounts (short term) as well as murahabaaccounts also with non Islamic financial institutions (medium term) preliminarlyvalidated by the Shariah Board BNP Securities Services Luxembourg is the Fund global custodian under the principlesof Shariah.
AZ Fund Sharia BoardProminent Shariah scholars have validated the fund’s investment strategyDr. Mohamed Ali Elgari – Kingdom of Saudi Arabia (Chairman)Dr. Mohamed Ali Elgari is a Professor of Islamic Economics and the former Director of the Centre for Research in IslamicEconomics at King Abdul Aziz University in Saudi Arabia. Dr Ali Elgari is an advisor to several Islamic financial institutionsthroughout the world and is also on the Shariah board of the Dow Jones Islamic index. He is also a member of the Islamic FiqhAcademy as well as the Islamic Accounting & Auditing Organisation for Islamic Financial Institution (AAIOFI).Dr Elgari has writtenseveral books on Islamic banking. He graduated from the University of California with a Ph.D in Economics.cDr. Muhammad Amin Ali Qattan‐ KuwaitDr. Qattan has a Ph.D. in Islamic Banking from Birmingham University and is himself a lecturer as well as a prolific author of textsand articles on Islamic economics and finance. He is currently the Director of Islamic Economics Unit, Centre of Excellence inManagement at Kuwait University. Dr Qattan also serves as the Shariah advisor to many reputable institutions such as RatingsIntelligence, Standard & Poors Shariah Indices, Al Fajer Retakaful amongst others. He is a highly regarded Shariah Scholar and isbased in Kuwait.Dr. Mohd Daud Bakar‐ MalaysiaDr. Mohd Daud Bakar is currently the Chairman of the Shariah Advisory Council at the Central Bank of Malaysia, the SecuritiesCommission of Malaysia and the Labuan Financial Services Authority. Dr. Bakar was previously the Deputy Vice‐Chancellor at theInternational Islamic University Malaysia. Dr. Bakar is a Shariah board member of various financial institutions, including theAccounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) (Bahrain), The International Islamic FinancialMarket (Bahrain), Morgan Stanley (Dubai), Bank of London and Middle East (London) amongst many others.Dr. Osama Al Dereai‐ QatarDr Osama Al Dereai is a Shariah scholar from Qatar. He has extensive experience in teaching, consulting and research in the fieldof Islamic finance. He received his Bachelor's degree specializing in the Science of Hadeth Al Sharef from the prestigious IslamicUniversity of Madinah. Dr Al Dereai obtained his Masters degree from the International Islamic University (Malaysia) and waslater conferred his Doctorate in Islamic Transactions from the University of Malaya. Dr Al Dereai is a Shariah board member ofvarious financial institutions which include the First Leasing Company, Barwa Bank, First Investment Company and Ghanim AlSaad Group of Companies amongst others.28
Fatwa on AZ Fund Global Sukuk29
Investment UniverseWell defined investment process compliant with the Shariah principlesInvestmentFundamental &SizeMarketTargetUniverseCredit Analysis& LiquidityExpectationsIssues1AZ Fund isadvised by AZGlobal Portföyfor the selectionof eligible issuesin an investmentuniverse made ofalmost 100 issues(US 100bn o/s)validated by AZFund’s ShariahBoard. Thisincludes ZCB,fixed rates andfloating ratesissues inmultiplescurrencies22The AdvisoryTeam leveragesits extendedexperience infixed incomemarkets toanalyze theintrinsic creditrisks of theissuers alsosupported byproprietary andexternal researchcapabilitiesThe exit value is aprimarycomponentperformance forany portfolio.The AdvisoryTeam screens allinvestible issuesby size andsecondarymarket tradingliquidity toensure thehighest liquidityof the portfolio2The AdvisoryTeamcontinuouslyelaboratesmarket viewsregarding theyield curves,inflationexpectations andgeneral macroeconomic views2Daily theAdvisory Teammaintains andupdates a list ofeligible issuesreflecting itsselection process.InvestmentDecision3AZ Fundincorporates theAdvisory Teaminput in itsinvestmentdecision. It alsomonitorsperformance andrebalances theportfolio with arisk managementoverlay30
Sukuk issuers are diversifiedNon‐Islamic companies are issuing sukuk to diversify their capital structureSovereignSponsoredcorporate entitiesCorporate(regional)Corporate (global)
Defining Portfolio Investment ObjectivesActive management of duration, currency, target yieldTarget diversification on at least 30 issues (currently 47)32
Building a Portfolio of SukukHigh diversification across geographies and sectors in USD liquid sukuk with high ratingPortfolio SnapshotNumber of holdingsAverage Maturity (weighted)Average Duration (weighted)Yield to MaturityAverage RatingGeographical breakdown474.233.692.92BBB Portfolio CompositionFixed IncomeCash & Cash 0%82.5%12.0%2.8%0.7%0.7%0.6%0.6%United Arab EmiratesSupranationalUnited KingdomQatarTurkeyHong KongSaudi ArabiaIndonesiaSouth AfricaMalaysiaSenegalUnited StatesOthersCash & Cash 5%1.2%1.1%0.7%1.2%1.3%3.0%100.0%Sectors breakdownGovernmentFinancialUtilitiesConsumer, CyclicalIndustrialConsumer, %2.0%1.8%1.2%100.0%Source: As of October 2014, AZ Fund33
Testing the Correlation of Sukuk versus the Conventional MarketLow correlation with developed & emerging market USD asset classesJPMorganiBoxx LiquidDJ Sukuk TotalEmergingUS Govt 5 YearMSCI EMHigh YieldReturn Index Markets BondYield IndexEquity IndexIndexIndexDJ Sukuk TotalReturn Index1JPMorganEmergingMarkets BondIndex (JPEICORE)‐0.1391US Govt 5 YearYield Index‐0.118‐0.0691iBoxx LiquidHigh Yield Index0.1520.4460.0801MSCI EM ource: AZ Global on Bloomberg data (weekly performance between December 2005 and March 2014.34
Sukuk goes Global: an Investment for All FaithsGlobal Sukuk invests in high potential markets through an ethical perspective Professional sharia compliant fund management The Fund is the first European UCITS IV with an investment mandate uniquely focused on sukuk issuedglobally by Governments, supranationals and corporates Defensive Investment Proposition Sukuk offer a superior risk adjusted profit rate also supported by underlying structures that often risesvisibility and understanding of all investment related risks. Attractive Geographies The Fund mostly invests in emerging countries often underweighted by conventional emerging marketsfunds, despite highly attractive fundamentals and future prospects Effective Diversification with an Ethical Perspective A sukuk portfolio allows for a USD exposure upon short/medium durations with intrinsic low volatility ‐ alsosupported by typical institutional positions held to maturity – and limited correlation to other asset classesGlobal Sukuk also offers a defensive alternative to conventionalbond and credit investments across selected emerging markets35
Performance AZ Global Sukuk in 2014A shariah compliant fund offering an efficient investment solution for the medium term2014 YTD* 12.1% 3.5%(*) Bloomberg, AZ Multi Asset Global Sukuk sub-fund USD class, As of October 31st 2014.AZ Global Sukuk has an objective of quarterly profit distribution36
CONTACTSBusiness Development/SalesCompanyTel.EmailGiorgio MeddaMaria Grazia SonzogniAZ GLOBALAZIMUT CAPITALMANAGEMENT 90 850 2019 501 39 02 8898 gni@azimut.itMariangela PunziAZ FUND MANAGEMENT SA 352 266 3811mariangela.punzi@azfund.comDisclaimerThis document has been issued by Azimut just for information purposes. No reliance may be placed for any purposes whatsoever on the information containedin this document, or on its completeness, accuracy or fairness. Although care has been taken to ensure that the facts stated in this presentation are accurate,and that the opinions expressed are fair and reasonable, the contents of this presentation have not been verified by independent auditors, third parties and theCompany.Accordingly, no representation or warranty, express or implied, is made or given by or on behalf of the Company, or any of its members, directors, officers oremployees or any other person. The Company and its subsidiaries, or any of their respective members, directors, officers or employees nor any other personacting on behalf of the Company accepts any liability whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwisearising in connection therewith.The information in this document might include forward‐looking statements which are based on current expectations and projections about future events. Theseforward‐looking statements are subject to risks, uncertainties and assumptions about the Company and its subsidiaries and investments, including, among otherthings, the development of its business, trends in its operating industry, and future capital expenditures and acquisitions. In light of these risks, uncertainties andassumptions, the events in the forward‐looking statements may not occur. No one undertakes to publicly update or revise any such forward‐looking statement.The information and opinions contained in this presentation are provided as at the date of this presentation and are subject to change without notice.Any forward‐looking information contained herein has been prepared on the basis of a number of assumptions which may prove to be incorrect and,accordingly, actual results may vary.This document does not constitute an offer or invitation to purchase or subscribe for any shares or funds and no part of it shall form the basis of or be reliedupon in connection with any contract or commitment whatsoever.The information herein may not be reproduced or published in whole or in part, for any purpose, or distributed to any other party. By accepting this documentyou agree to be bound by the foregoing limitations.37
State of the art and prospects: how the industry is shaping up Islamic Asset Management Financial Markets . that ensure the respect of the highest sharia principles of investment. 9 . A key investment tool for the asset management industry (Islamic) mutual funds are .
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