Australia to add another Islamic superannuation fund to its mix

AUSTRALIA: One of the world’s largest holders of pension fund assets will soon offer its Muslim minority and fast-growing ethically-conscious investing community yet another option to invest in a retirement fund that meets both Islamic obligations and socially responsible investing (SRI) principles, lending strength to its relatively nascent Islamic superannuation fund industry.

Australia’s Hejaz Financial Services (Hejaz FS) will roll out the Global Ethical Fund, its first fund, offering retail investors exposure to Australian equities, international equities, REITs, Sukuk, gold and Islamic term deposits in a Shariah compliant manner. Hejaz will join the few in the market –Crescent Wealth and First Guardian – in providing an Islamic retirement fund to the underserved Australian Muslim population.

“It is a balanced diversified global fund with the aim of investing in a balanced way allowing consistent returns,” Sheikh Muzzammil Dhedhy, COO of Hejaz FS, tells IFN. “The fund targets an average return of 7-10% and we hope to perform higher than that.” The investment universe of the fund will be screened for Shariah compliance and constructed in accordance with AAOIFI guidelines by San Francisco-based IdealRatings.

Despite being the fourth-largest pension fund market in the world at US$2.2 trillion in superannuation assets as at the end of 2016, Australia’s Islamic pension fund segment accounts for less than 1% of the overall market – unsurprising considering that the country has a small Muslim population (fewer than 480,000, or 2.2% of the population according to 2011 census). However, demand, according to market participants, is growing: Crescent Wealth, the first to foray into the domestic Islamic superannuation realm, crossed the AU$100 million (US$74.54 million) mark in 2015 after launching in 2013. Hejaz FS itself decided to take the superannuation fund route to better cope with demand.

“Prior to the global ethical fund, we constructed bespoke portfolios allowing us to offer Shariah compliant financial services but it wasn’t very scalable – this was feasible for a few hundred customers but with [the] thousands of customers that we have now, it becomes difficult to manage on an individual portfolio basis – so we opted to structure a mandate fund,” Muzzammil explains.

And fund managers are not only seeing take-up from the Muslim community, but also from non-Muslims who prefer to invest in an ethical manner. Muzzammil confirms that it is seeing increasing interest from non-Muslims in its Shariah compliant offerings as they hunt for good returns on ethical investments – about 10% of its clients are non-Muslims. Australians are moving rapidly toward the SRI: core responsible investment funds leaped 60% to AU$51.5 billion (US$38.39 billion) in assets under management, doubling in two years, according to the Responsible Investment Benchmark Report 2016.

Hejaz FS will feed AU$25 million (US$18.64 million) from its bespoke individual portfolios into the Global Ethical Fund. It projects the fund to hit AU$1 billion (US$745.44 million) in eight years’ time, and plans to expand its product suite as well as geographical presence.

“The Global Ethical Fund is the first of a series of funds and products that we will be launching in the next 24 months,” revealed CEO Hakan Ozyon, adding that: “We have set our sights firmly on expansion beyond Australian shores, into the Asia Pacific and beyond.”