'Halal' hedge fund set to boost Islamic finance world

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Targeting an asset base of $500 million with a minimum investment of $10 million, the hedge fund is challenging traditional thinking in Islamic finance which requires financial products to be compliant to Shariah law.

Secrets of the fund - devised with the co-operation of leading Shariah scholars in Bahrain and the USA - are to be revealed to a specialised audience of delegates from around the world attending the International Islamic Finance Forum next month in Dubai, United Arab Emirates.

The forum, renowned as 'the world's premier Islamic finance event', is held under the patronage of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and Defence Minister of the federal United Arab Emirates.

The primary aim of hedge funds is to reduce volatility and risk while attempting to preserve capital and deliver positive returns under all market conditions. Achieving such a fund while conforming to Shariah legal and financial restrictions has, until now, proved illusory.

The creation of a hedge fund which passes the test of conservative Islamic finance standards - including restrictions on interest - was carried out by Shariah Funds Inc., a US offshoot of Meyer Capital, a successful conventional hedge fund pioneer headed by CEO Eric Meyer.

'I was motivated by meetings with sophisticated Muslim investors who all desire the liquidity, risk mitigation and returns of conventional hedge fund managers but have been unable to find vehicles to invest their capital with these characteristics,' said Meyer.

Hedge funds have historically out-performed both mutual funds and major indexes, returning 17.5% compounded from 1998-2002 compared with 9.7% for mutual funds and 12.7% for the S&P500. Meyer returned 33% annually in his own hedge funds from 1995-2002.

Islamic financiers have already seen Shariah-compliant real estate funds, structured finance funds, long-only mutual funds, and Islamic indexes but not, until now, the totality on offer from long-short hedge funds.

The Shariah scholars on the Islamic hedge fund team are Shaikh Nizam Yaquby of Bahrain and Shaikh Yusuf Talal DeLorenzo, of the US.

'My feeling is that in the modern marketplace it is certainly within the realm of possibility to reproduce or replicate in some way, shape, or form, all modern instruments, derivatives or otherwise, used for trading or creating wealth and distributing it in ways that conform with Shariah,' said Shaikh Yusuf.

Long-short funds constitute around one-third of the world's total 7,000 hedge funds estimated to be worth some $600 billion.

Meyer believes that when the Muslim investment community is offered an approved hedge fund they will allocate similar percentages of their resources to the asset class. 'If so, we are talking about potentially billions under management,' he added.

Eric Meyer, along with Sheikh Nizam and Shaikh Yusuf along with international legal and bank broking advisors involved in developing the fund are part of the 50-strong international speaker faculty for the International Islamic Finance Forum.