Investing In Islamic Funds: A Practitioner's Perspective

CHAPTER 7

Comparative Analysis with Conventional Investing

Shariah-Compliant Investing Is Resilient, while Conventional Investing Has to Recover from Financial Crisis

Disposition of people is contingent upon interest.

(Islamic legal maxim)4

INTRODUCTION

It was in 2010 that I first met the equity investment team of Abu Dhabi Investment Authority (ADIA), one of the top-three largest sovereign wealth funds (SWF), in the world. In trying to understand the logic behind Islamic investing, they asked very valid questions that highlighted key concerns of most, if not all, institutional investors. They queried what characteristics of the smaller universe of available constituents were able to produce comparable performance to the conventional. They also insisted on knowing what the top ten stocks of a proposed Islamic global equity portfolio would be and how many of those were also in the top ten stocks of the conventional global equity index.

Over the last four years my greatest challenge has been to convince SWFs like ADIA, whose investment goals are solely focused on investment performance. There is strong resistance from most SWFs to invest a part of their monies in a Shariah-compliant portfolio. I believe that this is due to these organizations understandably wanting to remain in their traditional comfort zone to a certain extent, as well as due to the lack of long-term investment track records that would provide convincing evidence. Inconsistent efforts by the Islamic finance community ...