Friday 29 Mar 2024
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The recent announcement of the Employees Provident Fund's (EPF) plan to offer its members an Islamic investment option bodes well for the Islamic asset management industry. But there will be challenges in trying to replicate the returns from conventional investments, say speakers at the recently concluded IFN Asia Forum 2015.

In a plenary session titled “Trends in Islamic Asset Management and Asset Allocation Strategies”, Dr Hasnita Hashim, chief executive officer of Guidance Investments, says the pension fund's portfolio would need to be diversified to produce the same returns as its conventional counterparts. 

“The biggest allocation will still be equities and sukuk. But I believe there is a range of other instruments, which includes real estate or fixed income, that the EPF would need in order to replicate their conventional portfolio."

At present, the EPF invests about a third of its portfolio in stocks and bonds that comply with Islamic principles. The Islamic investment option will be offered to members in 2017.

Datin Maznah Mahbob, chief executive officer of AmInvest, says there may be some issues when it comes to determining asset allocation for Islamic investments.

“When we have two options on the table, we may face some issues. Conventional and Islamic pension are not comparable even though people might assume the same asset allocation applies to both. Believe me, [even] if you apply the same asset allocation, you won’t get the same results,” says Maznah..

In order to get an equivalent return, she adds, Islamic assets could sometimes carry a higher risk, especially when investors want the same kind of diversified basket they used to in conventional investments.

The global Islamic fund management industry has also grown over the years. At present, it is worth about US$75 billion, and makes up 5% of the total Islamic assets around the globe. The total number of funds is about 1,200, of which 200 are based in Malaysia.

Maznah says the Islamic asset management industry has been growing faster than ita conventional counterpart in Malaysia.

“From a domestic perspective, there is no impediment to growth. We don’t have a shortage of assets, in terms of sukuk and shariah-compliant equities. But I have noticed internationally that although Islamic assets are growing, they could actually grow faster.”

According to Hasnita, investors in Europe and the US have been looking for opportunities to enhance returns from low risk products that yield steady returns. “Increasingly, institutional investors, pension funds and organisations have been looking at alternative asset classes as 90% of the returns depend on asset allocation.”

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