Islamic fund assets under management (AuM) grew by 7.6 per cent to $58 billion (Dh213 billion) in 2010, up from $53.9 billion in 2009, according to the fifth annual Ernst & Young Islamic Funds and Investments Report (IFIR 2011) released yesterday.
The growth was largely due to market performance and partially on account of new money inflows. Assets under management are largely dominated by equities — about 39 per cent.
Fixed income, commodities and alternatives also did well in 2010, which was a record year for sukuk with an issuance of $50 billion.
In the GCC, Ernst & Young expects the liquid wealth of Sharia-sensitive investors to add more than $70 billion to Islamic funds by 2013.
"Growth in 2010 is welcome given the industry's flat performance since 2007. Looking ahead, the challenging times are by no means over," said Ashar Nazim, Mena head of Ernst & Young's Islamic Finance Services.
Despite the market challenges, 23 new Islamic funds were launched in 2010 while 46 were liquidated.
The Islamic funds' universe comprises some 100 fund managers and 800 Islamic funds, but represents only 5.6 per cent of the $1 trillion Islamic financial services industry. Apart from identifying the trends in the Islamic fund management industry, IFIR identifies three key priorities for the industry.
While fund managers are faced with limited availability of quality Sharia compliant assets and fewer products to invest in, the report calls for an improvement to levels of investor and industry trust in their brand and track record.
The report calls on the industry to widen its reach of various sources of funds such as institutional and affluent client fund flows.
Access to affluent investors and institutional clients like Waqf (Islamic endowments), family businesses and takaful operators is central to future growth.
"Over-dependence on a few institutional funds that made up two-thirds of the total new funds launched in 2010 is a key structural weakness in Islamic markets in all regions except Malaysia," the report said.
"Institutional funds make up 67 per cent of global Islamic funds' AuM while retail funds make up 33 per cent."
Sharia-compliant philanthropy, or planned giving, is on the rise with the Waqf sector estimated at around $105 billion globally, according to recent research conducted by Ernst & Young on the sector.
"The Sharia-compliant endowment sector provides a unique impetus for the growth of Islamic finance including the asset management industry," Nazim said.
"While Waqf has always been an integral part of Islamic countries' economic system, it is only now that a more formal structure is evolving for professional investment management of this pool of money."
A significant majority of the Waqf assets are in the form of real estate, and could be as high as 70-80 per cent of total sector assets.
"The remaining money is deployed in Sharia compliant money markets mostly with regional financial institutions. Between Awqaf institutions [organisations that manage Waqf assets] and other entities, the cash Waqf alone is estimated at $35 billion," he said.