MANAMA: The number of Islamic fund liquidations is expected to rise unless the nascent industry can develop the scale needed to tap into a large enough pool of Muslim wealth to succeed, a director at Ernst & Young said.
Assets managed by Islamic funds are hovering at about $52 billion, a fraction of the Muslim wealth pool estimated to be $300 billion, Ashar Nazim, a director at Ernst & Young, told Reuters on the sidelines of a two-day Islamic capital markets conference which ends on Tuesday.
"This actually represents both a wake-up call and an opportunity to Islamic fund managers," he said.
Nazim said Islamic funds were too small in size to offer the quality much larger conventional fund managers offer, leaving Muslim investors with the choice of keeping much of their assets in cash or investing with conventional asset managers.
Islamic financial institutions have not "moved up that curve in terms of sophistication," he said.
According to Ernst & Young, some 70 percent of Islamic fund managers have less assets under management than the $80-100 million estimated break-even size.
There were 27 Islamic fund liquidations last year, compared with 29 new funds being launched globally, Nazim said.
Nazim also said that too many Islamic asset managers tried to distribute to customers directly, instead of either distributing through commercial banks or offering third-party funds to diversify their product offering.
"That is the way forward, we see a lot more strategic alliances between distributors like commercial banks and product providers," he said.
Only real estate
Raja Teh Maimunah, head of Islamic markets at Bursa Malaysia told the conference the lack of diversified products was one shortcoming of the industry compared to its conventional peers.
Conventional asset managers typically also offer commodity and money market investments, while options to invest in highly rated Islamic bonds, or sukuk, are limited.
The Islamic fund industry in the Gulf Arab region has been hampered by the lack of large-scale pension funds and the small size of the Islamic insurance market, or takaful.
"I think an exciting market right now is takaful, I see great potential in that market," said Tariq Al Rifai, a director at Dow Jones Indexes.
Premiums in the takaful industry are growing in double-digits every year.
Al Rifai also said he sees more Islamic exchange traded funds (ETF) being launched, adding there are only eight of them globally.
