BarCap partners to launch one-stop sharia shop

Barclays Capital and Islamic hedge fund Shariah Capital have launched the Al Safi Trust, the first investment platform dedicated solely to sharia-compliant products. The platform offers a diverse range of Islamic financial instruments that were not previously widely available in Islamic finance to create structured products.

The Al Safi Trust provides financial engineers with a portal through which to perform their own mixing and matching of funds and managers before packaging them in a structured product that can be capital-guaranteed or protected and will link to sharia-compliant stocks such as long/short equity, real estate and commodities funds. Other types of product offered comprise hedge funds with a variety of strategies (long/short, market neutral, 30/130), sector specialisations (such as technology, healthcare and utilities) and geographical concentrations.

The comprehensive sharia-compliant framework is targeted at hedge fund managers who wish to accommodate Islamic investors and at institutional investment managers and distributors who are looking to tailor sharia-compliant financial products. The platform is not accessible to retail investors.

"Al Safi is a one-stop shop for a bank or financial institution with a sharia-compliant mandate looking to structure and distribute alternative investment products," says Eric Meyer, chairman and CEO of Shariah Capital. "The Al Safi Trust bridges western investment management and sharia. It allows hedge funds to manage consistently within their existing strategies while addressing the religious requirements of Muslim clients. At the same time, Islamic investors can choose from a range of high-quality hedge fund managers and related structured products."

Shaykh Yusuf DeLorenzo, chief sharia officer at Shariah Capital, says demand for existing sharia-compliant structured products is growing, despite not satisfying the real financial needs of Islamic investors. However, if the industry is presented with authentic sharia-compliant products that address those needs, especially in terms of managing risk, then there is every reason to expect the market to respond favourably, he says.

"As a private sharia consultant prior to joining Shariah Capital, I can tell you that 10 years ago no-one in Islamic finance was doing structured products," says DeLorenzo. "All of that has changed. The first fatawa or sharia board approvals for structured products began appearing seven or eight years ago, after the dot.com bubble burst. It took a few years for the idea to catch hold, but it has now become fairly commonplace. Furthermore, the rise of the Islamic insurance industry means a significant rise in demand is expected."

Richard Ho, head of fund-linked derivatives at Barclays Capital, says the platform is unique as it will allow a growing number of investors to access sharia-compliant funds in the alternative investment arena. "We are looking to offer solutions that aren't readily available in Islamic finance, not to recreate what is already out there," says Ho. "We expect the market to reach between $2 billion and $5 billion in the next year or two and are primarily targeting institutional investors in the Middle East and the Far East in the first instance.

"Treasuries of financial institutions in particular are keen to find new and innovative ways for the deployment of proprietary capital, and structured products address this need. They are essential to managing risk," he says. "We believe the platform will bring more stability to the Islamic financial industry. It is fully customisable and allows institutions to build products for either themselves or for selling on to investors. Essentially, they can white-label the products they construct."

The Al Safi Trust platform offers a standardised and transparent format in which there is uniformity in sharia supervision, accounting, custodianship, and prime brokerage as well.

DeLorenzo maintains that the Al Safi Trust is rigorous in its adherence to sharia and the platform will only sponsor managers who contractually have agreed to manage within sharia standards. "If an investor is satisfied with the degree of sharia diligence on the most complex products, (they can) rest assured that the same degree of diligence has gone into all the other products on the platform."

Shariah Capital will act as the sharia adviser to the Al Safi Trust while Barclays Capital will be responsible for marketing the platform and its sub-trust strategies and will also provide prime brokerage services together with Shariah Capital's proprietary screening software and short-sale solution.