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Hejaz Financial Services
19Sep

Hejaz climbs Islamic fund ladder

September 19, 2019 hejazfs Investments, Media, Superannuation 128

Hejaz Financial Services announced its flagship fund, the Global Ethical Fund, has outperformed Australia’s other Islamic investment funds during FY19.

It achieved gross returns of 6.82% per annum, while Crescent Wealth generated 4.56% per annum.

The Sharia-compliant fund invests across multiple asset classes including domestic and global equities, property, infrastructure and fixed income assets.

In line with Sharia principles, its portfolio excludes banks, pig products, alcohol, media, weaponry, tobacco and gambling, making the screening process more stringent than traditional ESG investments, it said.

Companies it invests in must have debt-to-market-cap ratio debt below 30%, and tangible assets above 50%.

Senior portfolio manager and chief executive Hakan Ozyon said the strong results were due to the fund’s global exposure and the hyperactive approach to portfolio management.

More than a quarter of the fund’s investments are in overseas markets, with about 55% of those in the US, predominantly in IT, healthcare and FMCG sectors, he said.

“Our highly active approach matches economic cycles to geographies, and is tailored for each market and each sector.”
Ozyon projected Hejaz Financial Services will expand despite a global volatile market, expecting funds under management – currently at $60 million – to double in the next 12 months.

“Our track record of strong results, growing investor interest, and increasing market demand for Islamic investment products – reflective of Muslim population growth in Australia – gives us confidence that we will meet our growth targets for the new fiscal year.”

Hejaz also provides Islamic compliant financial advice, accounting, estate planning and tax services.

The company is set to expand their offering in the next 12 months to include real estate, insurance and legal services.

According to a report by the Malaysia Islamic International Financial Centre, total global Islamic assets under management were US$70.8 billion at the end of the first quarter of 2017, up from US$47 billion in 2008.

Report

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05Sep

Hejaz posts leading results for FY18-19

September 5, 2019 hejazfs Investments, Media, Superannuation 116

Hejaz Financial Services has released results for FY18-19, showing a gross return of 6.82 per cent for its Hejaz’s Global Ethical Fund.

The fund was Sharia-compliant and invested across multiple asset classes including domestic and global equities, property, infrastructure and fixed income assets.

It had a more stringent screening process than other environmental, social and governance (ESG) funds, as the portfolio excluded banks, pig products, alcohol, media, weaponry, tobacco and gambling.

“If a client requires certain religious overlays or certain social overlays it’s a duty of ours, not just as investment managers but also financial planners, with what they require,” Ozyon said.

“We think we are a disrupting fund manager and we have a lot of demand around the world for our price at this stage.”

In addition to its fund, Hejaz said it also offered other financial services, including financial advice, accounting, estate planning and tax, all geared towards the Muslim population and were set to expand their offerings in the next 12 months to include real estate, insurance and legal services.

For the financial year 2018/19, the fund returned 6.8 per cent. It aimed to achieve CPI plus three per cent (before fees) per annum and targeted investors with a medium to long-term time horizon.

Report

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08May

Opportunities in Australia’s Islamic finance industry

May 8, 2019 hejazfs Investments, Lifestyle 112

The industry needs two major requirements before it can enter the major growth phase:

  1. Products and services need to be consumer-driven, rather than product-driven, and
  2. The quality of products needs to be on par with, if not better than, conventional products.

The Muslim community living in Australia are exposed to an array of conventional financial products which not only cater to consumer needs but can also be customized for individual requirements. With the introduction of highly qualified and experienced Muslim entrepreneurs and professionals into the Islamic financial services industry in Australia, we are beginning to see better quality services and products which comply with Shariah standards and are on par with conventional products and services.

Performance is being driven with more market share obtained from conventional products and services providers; however, the evolution is seen in the transition currently being made from product-driven to consumer-driven within our community. I have personally seen this transition in the past two years, where Muslims are now conducting their own research into providers and then making their own informed decisions. This is a pleasant development from the past where they would simply be making decisions on which product was better sold to them. This is a real indication of a market developing and approaching the growth phase. This can begin to not only allow current quality providers to leverage, but also ensure that Muslim consumers do not simply follow blindly into inferior products and services.

The Muslim community is growing the fastest in Australia at approximately 9% year-on-year, with almost 10% of all skilled migrants being of the Islamic faith. This allows organic growth in the client base, ensuring a bullish trajectory for years to come. Islamic financial services providers within Australia need to ensure the key performance driver is not just a generic growth rate, but that Muslims are actively seeking their services and products off the back of good feedback, client research, and superior products.

Regulatory constraints and tax issues

I am a true believer that a genuine entrepreneur never makes excuses, but the only find solutions to challenges. In my opinion, there has been too much talk on regulatory constraints and unfavorable tax laws which hinder the growth of the Islamic financial services industry in Australia, and western countries in general. Yes, it is true, in an ideal world, all regulations will assist in the marketability of Islamic financial products, but until this transpires, we need to stop making excuses, and become problem-solvers and solution providers.

The conventional market has over centuries continuously innovated as a result of constantly changing laws and compliance by regulators and politicians. Financial institutions have always required product development to ensure competitiveness within the industry — this is the norm in all industries globally. We as Islamic financial services providers cannot just make excuses that the laws are unfavorable, and just sit on our laurels with inferior products and services. The Muslim community deserves quality products and services, and if this means that providers who do not wish to find solutions and innovate within the guidelines of Shariah are eliminated from the market, then so be it as this is beneficial for all Muslims.

This will ensure that qualified individuals and organizations remain competitive in the Islamic financial services space. The Islamic community will eventually be the real winner, where they will be invested in highperforming investment funds and take loans that do not disadvantage them because they want to conform to their religious beliefs. There is no mountain that is unclimbable, hence tax laws and regulations should not stop the true believer from obtaining quality Islamic products and services.

Laws and regulations are constantly evolving, therefore sometimes they will change and benefit product developers and sometimes they will make it more difficult. However, one thing should always remain: the end user should always be provided with a better product.

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06Feb

Muslim millennials growing wealthy and demanding impact investing

February 6, 2019 hejazfs Investments, Lifestyle 114
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15Aug

Awaiting innovation in the Islamic retail asset management space

August 15, 2018 hejazfs Investments, Lifestyle 104
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18Jun

Australia Islamic finance blooms under the radar

June 18, 2018 hejazfs Investments, Lifestyle 116

While Islamic finance centres in Southeast Asia and the Middle East keep dominating core developments in the sector, and news are currently almost exclusively focused on upcoming Shariah-compliant financial markets in Northern and Sub-Saharan Africa, Central Asia and Europe, activities elsewhere are quite out of the limelight, but unjustifiably so.

An upcoming Islamic finance forum, the IFN Australia Forum 2018, to be held on March 27 in Sydney, serves as a reminder that Shariah-compliant finance is a quite active segment of the financial industry in Down Under, and also a sustainably growing one. Even though the country of 25mn people – of which 2.6% or around 650,000 identify themselves as Muslims as per the latest census in 2016 – does not have dedicated Islamic finance laws and regulations, the Shariah-compliant finance scene is blooming in line with Australia’s strong economic fundamentals.

The country in fact has a substantial number of Islamic finance service providers which offer a broad scope of Shariah-compliant finance products ranging from house financing, Islamic pensions, wealth management to halal superannuation funds and takaful. Major industry players include Hejaz Financial Services in Thomastown, Victoria, one of the largest Islamic finance institutions in Australia; Melbourne-based MCCA Islamic Finance & Investments (formerly Muslim Community Cooperative of Australia); Islamic Co-Operative Finance Australia in Parramatta, Islamic home financing provider Iskan Finance and Islamic investment firm Crescent Wealth, both based in Sydney; Amanah Islamic Finance Australia based in Coburg, Victoria, as well as Islamic finance divisions of National Australia Bank and Westpac Banking Corp, which are mainly designing Muslim-friendly mortgage products to cater to the burgeoning real estate market where one of the most popular Shariah-compliant products is diminishing musharaka for home financing.

In addition, there are institutions such as the Australian Center for Islamic Finance in Melbourne, which offers Islamic finance skills training, the Islamic Financial Services Council of Australia, an industry body providing analysis, advice and advocacy for the Australian Islamic financial services industry, also based in Melbourne, and the National Center of Excellence for Islamic Studies funded by the Australian government and operating in a collaboration between the University of Melbourne, Griffith University and Western Sydney University.

The growth of Islamic finance in Australia is, first of all, owing to a growing number of Muslim immigrants over the past decade or two. Among the Muslim communities Down Under, the largest are originating from Bosnia, Bangladesh, Egypt, Iraq, Lebanon, Turkey and Somalia. There is also a Kurdish Muslim community, and more than 1,000 people identify themselves as Aboriginal Muslims, being descendants of Afghan cameleers who arrived in Melbourne in 1860, or have Indonesian ancestry.

Most of the growth in the number of Muslim Australians occurred in the recent past, with a 15%-growth between the 2011 and 2016 census alone and a 40% growth from 2006.

“The Australian Muslim community has experienced rapid growth since the 1990s, both in number and wealth,” explains Hakan Ozyon, CEO of Hejaz Financial Services and Chairman of the Islamic Financial Services Council of Australia.

“I decided to establish Hejaz back in 2014 to provide complete Islamic financial services solutions under one roof. Meanwhile, Hejaz is competitive with existing banks and is set to reach $1bn in assets by 2021,” he adds.

Apart from demand from domestic Muslims, as of late there is also strong interest from Shariah-compliant investors from Southeast Asia and the Middle East, particularly in Australia’s booming real estate sector.

For example, Malaysia’s Lembaga Tabung Haji, a fund that facilitates savings for the pilgrimage to Makkah through investments in Shariah-compliant vehicles, is one of the biggest Islamic investors into Australia. Institutional investors from the UAE and Saudi Arabia are also on the outlook for Islamic property investment in the country’s real estate hot spots Sydney, Melbourne, Brisbane, Adelaide, Perth, Darwin and Cairns.

The growing inflow of Shariah-compliant funds has propelled Australia among the non-Muslims jurisdictions with the largest amount of Islamic assets under management besides the UK and Luxembourg. Analysts forecast the Australian Islamic investment fund industry to grow up to $22bn in assets by 2020.

The sustained growth of Islamic finance in Australia is even more interesting to observe because the government did do much to support the industry. In September 2008, Canberra commissioned a report into how to position Australia as a financial services hub in the Asia-Pacific region, and the analysts came up with a number of recommendations, including the development of Islamic finance. However, the government, although encouraging Muslim communities to set up their own financial services ecosystem, has been overall slow in responding to the booming Shariah-compliant finance scene and is also hampered by weak institutional support from most large conventional banks and by the fact that most financial regulation and legal issues are handled autonomously by Australia’s federal states. While this will not necessarily curb further growth of the industry for the Muslim clientele, it remains a challenge for the expansion of Islamic finance into the non-Muslim financial market in Australia, which, like elsewhere, requires clear investment rules and regulations for legal reasons.

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03Jun

Demand for Islamic pensions set to grow but can fund managers overcome the challenges?

June 3, 2018 hejazfs Investments, Lifestyle, Superannuation 103

Statistics show that the global population is aging rapidly with exponential increases expected in the coming decades. Figures from the UN show that, compared with 2017, the number of persons aged 60 or above is expected to more than double by 2050 and to more than triple by 2100, rising from 962 million globally in 2017 to 2.1 billion in 2050 and 3.1 billion in 2100. In Europe, 25% of the population are already aged 60 or over. That proportion is projected to reach 35% in 2050 and to remain around that level in the second half of the century.

This segment of the market now accounts for an ever-increasing proportion of investment assets, as global institutional pension fund assets in 22 major markets grew to US$36.4 trillion at the end of 2016, representing an increase of 4.3% in the 12-month period, according to the Global Pension Assets Study 2017 conducted by Willis Towers Watson.

The global Muslim population is no exception to this as their demand for Shariah compliant, consistently performing and secure pension funds increases. There is no denying the fact that since the early 2000s, Islamic finance institutions have become a force to be reckoned with, as their capital grew from US$200 billion in 2000 to close to US$3 trillion in 2016. This figure is expected to go up to US$4 trillion in the 2020s. There are now more than 300 banks and 250 mutual funds around the world complying with Islamic principles.

Despite the impressive growth of capital in Islamic finance institutions, uptake for Islamic pension products has been restricted due to several factors which include the following:

1. Limited financial literacy: The average level of financial literacy among Muslims seeking Shariah compliant products is lower than those consumers seeking conventional financial services. This holds true for those seeking Islamic pension products as well as other Islamic financial products and services. This deficiency exists due to limited exposure to the teachings and principles of Islamic finance throughout most schooling and tertiary education systems.

2. Higher costs: Investors in Islamic pension funds often find that the fees charged by compliant funds are higher than their conventional counterparts. Generally, Islamic pension fund managers encounter greater costs as they need to appoint and remunerate Shariah boards, the necessity of asset-screening and a lack of scale in funds, while valuation is clouded by a lack of liquidity in some instruments. However, the impact of such costs should start to reduce as the average fund size increases and economies of scale are found across the industry.

3. Limited access to quality financial advice: The concept of seeking sound financial advice regarding one’s finances is somewhat foreign to many Muslim pension investors, hence, they often opt for a conventional product as a result of not seeking advice. Furthermore, many Muslim investors may not have access to the tailored advice capabilities they need to make informed decisions in choosing their pension funds.

One of the greatest challenges faced by Islamic pension funds and their managers is their ability to structure portfolios that perform consistently while managing risk exposure within these portfolios and successfully selecting investment assets with the limited universe. Investors in pension funds are often more mature in age and are therefore classified as conservative or defensive investors. Many fund managers overlook this crucial point and overexpose investors to growth assets such as compliant equities and property which are better established in the conventional finance industry. Generally, fixed income assets suffer from a lack of liquidity and inadequate valuation modeling.

Islamic pension fund managers rely heavily on fixed income investments and Sukuk bonds to manage the risk profiles of their respective funds. Unfortunately, fixed income is relatively immature in the Shariah context, chiefly because there are so few Sukuk bond issues. A report by PwC on Islamic asset management found that money market funds are in greater use than fixed income funds, within the Islamic pension space. There is also a lack of clarity about the duration of instruments in some Shariah compliant fixed income funds. Funds often invest in a wide range of maturities, with no clear information for investors on the overall
aims of the fund.

There is no doubt that the demand for Islamic pensions globally will continue to grow. Stimulated by an aging population and the ever-growing profile and awareness of Islamic finance, the coming decades will experience exponential growth in the Islamic pension segment. Islamic finance institutions must continue to innovate and create products and services that mirror the conventional alternatives while delivering positive outcomes to members in a manner conforming to their ethics and values.

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09May

Can retail Islamic funds gain traction as SRI funds?

May 9, 2018 hejazfs Investments, Superannuation 102

A report published by Thompson Reuters in 2014 found that a key challenge faced by the Islamic retail asset management industry is scalability. The report highlighted three solutions to reach the required scale, one of them being to position Islamic funds as socially responsible investment (SRI) funds.

The conventional funds management industry has one sole motivation — to maximize risk-adjusted returns. While this approach may have been acceptable and agreeable to all investors in past years, a growing number of investors are now seeking investments that agree with their conscience, moral, ethical and/or religious values.

The natural overlap between both SRI and Islamic investments is that they seek businesses which are not detrimental to humanity and which comply with mandates of ethical or religious principles. Both apply negative screens to filter investments, and their common list of forbidden sectors includes alcohol, gambling, tobacco, adult entertainment, and weapons — businesses that are often deemed harmful to humanity and society. However, it must be noted that Shariah filtering principles apply quantitative financial screens, in addition to the ethical business screens, which further shrinks the investable universe.

Recent studies have also proven a common philosophy to be a misnomer. For decades, many have held the view that investments which are socially responsible and/or Islamically compliant lack diversification and underperform. However, an analysis of SRI funds globally indicates that the performance trend is rather unexpected. Despite having a lower base at inception, SRI funds have swiftly reached the same performance levels of their conventional counterparts and at times outperformed them, proving that investing ethically or Islamically does not necessarily result in underperformance.

It goes without saying that both SRI and Islamic investments face similar challenges as well. They have an added layer of costs to bear in terms of filtering, compliance, and certification. Both investment methodologies are not yet standardized across their respective segments, and they are both driven by institutional investors which means that it may be some time before retail asset managers share significantly in this growth.

From a scalability perspective, positioning Shariah compliant funds as SRI funds would enable retail asset managers to reach a broader range of investors and enhance the brand of Shariah compliant funds. Amalgamation of Shariah compliant filters and SRI principles would reduce the overall risk profile of the funds.

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