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Wherefore art thou Shari’ah compliant hedge fund?

Anyone who has been involved in the Islamic finance space for any length of time will know that there has been a long running debate about whether or not hedge funds have any place in Islamic finance.

Naysayers, in my own view, belong in the same club as people who said ‘no’ to the invention of the wheel. Hedge funds can be a useful financial instrument for – guess what – hedging, and that can be a very useful thing in any modern portfolio.

If you do any reading on the subject of Islamic hedge funds then you are bound to come across the name of Eric Meyer – who has been a pioneer of the instrument for many years. Indeed, there was a time when Meyer would be present at just about every Islamic finance conference going – trying to educate people about the rightful place of Shari’ah compliant hedge funds in modern portfolios.

The sad news that Meyer’s Shariah Capital was delisting from London’s AIM market is a bad day for the industry indeed. Admittedly it seems as if the fees associated with such a listing are rather onerous – and would be a trial for any small to medium sized player – but we need to hope that this does not mean the end of the plight to introduce Islamic hedge funds into the mix.

People with long memories will remember Noriba – the onetime Islamic finance wing of UBS – and its attempts to launch an Islamic hedge product. Some others might remember the abortive launch of a Dubai Islamic Bank/Goldman Sachs/ Deutsche Bank Shari’ah compliant hedge fund replicator product that was shot down in flames shortly after its launch.

There have been numerous other attempts to squeeze hedging into the Islamic finance mix and none has been very successful. If we are not careful then people will give up trying and we will see the industry atrophy that little bit more.

Many great innovations take time - but the Islamic hedge fund has probably taken long enough already. The industry needs innovation if it is going to grow beyond the confines of real estate investment. What are we waiting for?



#2 Shamsul A 2012-10-04 06:34
Islamic finance must stop the habit of having what conventional finance has.
Hedge funds may be necessary in the conventional financial sphere but is not needed in a 'pure' Islamic finance environment.
Given that the present Islamic finance environment is a replica of the conventional market with Arabic names, I guess a hedge fund would fit in really well.
#1 Abu Zaki 2012-08-29 02:02
Before Muslim Bankers/ Investors really going into it, we have first to answer this. Does Islamic economic really need hedge fund. Why hedge fund is required? It is because of fluctuation of price. Does Islamic fund has a price. The price of a fund is "interest" It is haram..
I suggest the Shariah Scholars has to reexamine this products and other financial products such as , the so call Shari'ah compliance option.