Gulf Finance House plans to launch sectoral Islamic fund focused on pension, social insurance funds

Unveiling the plan to float the first-of-its kind Islamic fund pool at a press conference on the last day of the `Eighth Annual Regional Pension and Social Insurance Conference - Planning for Reform, Sustainability and New Challenges,' in Abu Dhabi, organized jointly by The Muhanna Foundation and UAE's General Pension and Social Security Authority (GPSSA), a senior GFH spokesperson said the proposed fund with a life in the range of 8-15 years or more was being assessed in association with leading actuarial firm, i.e. Muhanna & co.

Commenting on the proposed fund on the sidelines of the conference organized under the auspices of His Highness Sheikh Hamdan bin Rashid Al Maktoum, the UAE Minister for Finance and Industry and also the Chairman of GPSSA, Mr. Esam Janahi, Chief Executive Officer of GFH said: "We are looking at a family of funds with a total size of

US$5-10 billion - in tranches of US$1 billion a year - which will be invested in a balanced Shariah-compliant portfolio of income generating asset classes with varying levels of risk."

"It is estimated that in the whole region there is about US$250 billion worth of pension and social insurance funds. We plan to tap into this corpus of funds," said Mr. Janahi.

According to the initial plans, the new GFH sectoral Islamic fund would offer investors significantly higher rate of return than the usual average. "Our projected annual yield for the fund is 7 per cent a year which we believe is significantly higher than similar conventional funds," Mr. Janahi said.

Mr. Ibrahim Muhanna, Actuary and the Managing Director of i.e. Muhanna & co. said: "The decision to look at an Islamic fund focused on the regional pension and social insurance funds is a timely and strategic initiative. Being an Islamic fund it would be a safe and secure investment avenue for these funds."

GFH will be the financial and investment advisor for the fund while i.e. Muhanna & co. will be the risk management consultants. "In our assessment the potential investment size for each tranche of the fund is to the tune of US$4-5 billion. In addition to equity financing, the fund would also utilize Islamic Senior Debt (Murabaha, Istisna and Ijarah) as well as Islamic Mezzanine financing," Mr. Muhanna said.

Mr. Janahi said the modalities of floating the Islamic fund was being worked out. "The proposed fund will invest under strict Shariah norms in power and energy, telecommunications, transportation, water, sanitation and environment, natural resources, real estate and others."

He said the geographical distribution of the fund is envisaged to be the GCC, wider Middle East and North Africa (MENA) region and Islamic countries. "There is tremendous enthusiasm towards Islamic investment instruments, in the region as well as world over. This is because of the safe and righteous nature of the investments made under the Shariah norms after careful scrutiny," Mr. Janahi said.

Mr. Muhanna highlighted the importance of structuring the investments to meet the profile needs of pension funds and social insurance organizations by using asset liability modeling.

Mr. Janahi concluded that the new Islamic fund will gain from the boom in the real estate and infrastructure developments across the region. "Real estate and infrastructure development is happening at a hectic pace in the region and the new fund will capitalize on this opportunity. We are confident that the returns may even go higher than what is guaranteed considering that growth in these sectors is continuing unabated."