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ISLAMIC ASSET ALLOCATION
Myth or Reality?
Islamic Wealth Management
Geneva, 24 April 2007
John A. Sandwick
Encore Management S.A.
40, rue du Marche
CH 1204 Geneva
50 years of institutional investing
z U.S.
pension fund assets well above $15
trillion
z Pension funds provide grants for
research
z Portfolio allocation research led to
common conclusions
z Allocation models vary little as a result
Classic portfolio allocation models
The 3 Basics:
z
z
z
Income
Balanced
Growth
Risk Profile:
z
z
z
Conservative
Moderate
Aggressive
Allocation has no religion
z Allocations
all meet same tests for longterm profit and risk
z Allocations don’t violate the basic rules
of investing
z Allocations by western institutional
investors have met the tests of tough
market conditions
z Allocations are made according to logical
principals of Modern Portfolio Theory
Allocation steps for Muslims & Non-Muslims
Non-Muslims
1. Identify starting point
2. Identify end point
3. Measure client risk
profile
4. Map long-term goals
5. Develop global
allocation model
6. Select securities
7. Time asset purchases
Muslims
1. Identify starting point
2. Identify end point
3. Measure client risk
profile
4. Map long-term goals
5. Develop global
allocation model
6. Select securities
7. Time asset purchases
NO DIFFERENCES BETWEEN MUSLIMS & NON-MUSLIMS!
Standard Balanced Allocation, Non-Islamic
Balanced Investment Strategy:
z
Cash allows for opportunistic
purchases & pays fees
z Bonds provide stable,
guaranteed returns
z Stocks provide extra yield,
but with added volatility
z Alternative Investments
provide above-market,
uncorrelated returns
ASSET
ALLOCATION
Cash
5%
Bonds
45%
Stocks
35%
A.I.
15%
Standard Balanced Allocation, Islamic
Islamic Balanced Investment
Strategy:
z
Cash allows for opportunistic
purchases & pays fees
z Bonds provide stable,
guaranteed returns
z Stocks provide extra yield,
but with added volatility
z Alternative Investments
provide above-market,
uncorrelated returns
ASSET
ALLOCATION
Murabaha
5%
Sukuk
45%
Stocks
35%
A.I.
15%
Paradox of Islamic allocation
z
All steps for investing are
identical, Islamic and NonIslamic, up to security
selection
z Murabaha and equity funds
well enough represented in
the Islamic space
z Alternative investments are
few, but can work around this
with structured products
z Fixed income is the sole
major block for true Islamic
Wealth Management
ASSET
ALLOCATION
Murabaha
5%
EMPTY!
NOTHING
AVAILABLE!
Stocks
35%
A.I.
15%
Solution for Islamic allocation
z
z
At risk of selling my
own product, I do
have to mention
Sanad Sukuk Fund
It is the only product
in the world that can
fill this major gap in
Islamic portfolio
allocations
ASSET
ALLOCATION
Murabaha
5%
Sanad Sukuk
Fund
45%
Stocks
35%
A.I.
15%
History of Islamic allocations
z
z
z
z
No history
Until today there has been no disciplined,
scientifically based Islamic Wealth
Management. It did not exist as a profession
Without an asset class to fill in where fixed
income fits in traditional allocations, no one
can manage Islamic assets
While Sanad is the first sukuk fund, the world
will see many more in the coming years
What is available?
z
z
z
Muslims have been
seduced into the
private equity
investment trap
The Islamic world
does not have deep
& broad security
universes
The result as been
an over reliance on
stocks, real estate
z
z
z
Goofy structured
products are also
far-too popular
None of the major
money-center banks
are focusing on the
major allocation gap
Same with nearly all
the regional banks
Long-term solutions to Islamic Wealth Management
z Keep
focused on the basics
z Don’t deviate from the standard
allocation model
z Avoid fads and short-term trends
z Track CALPERS and you’ll do just fine
z Push the big banks to do their jobs, don’t
accept suspension of the rules