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ISLAMIC FUND MANAGEMENT ISLAMIC FUND MANAGEMENT
PRESENTATION BYPRESENTATION BY
MR.K.SALMAN YOUNISMR.K.SALMAN YOUNISMANAGING DIRECTORMANAGING DIRECTOR
KUWAIT FINANCE HOUSE (MALAYSIA) BERHADKUWAIT FINANCE HOUSE (MALAYSIA) BERHAD
BRUNEI ISLAMIC FINANCIAL SERVICES FORUMRoyal Berkshire, Jerudong Park Polo Club - Brunei Darussalam
15 September 2006
Page 2
TOPICS
Introduction to Kuwait Finance House
Background of Kuwait Finance House (Malaysia) Berhad
KFH Experience In Fund Management
Overview of Islamic Funds
Types of Islamic Funds
Asset Classes
Socially Responsible Investing (SRI) & Shariah Compatible Investing (SCI)
Challenges & Way Forward
Page 3
Incorporated and headquartered in the State of Kuwait – 1977
Ownership :- Kuwait Investment Authority 25.01%- Public Authority for Minor’s Affair 10.78%- Kuwait Awkaf Public Foundation 8.47%- General Public 55.74%
100.00%
KFH is one of the largest Islamic banks in the world, and is involved in corporate, investment, commercial and retail banking.
The Government of Kuwait owns 44.26% of the equity, and the general public holds the remaining shares
KFH AT A GLANCE
Page 4
SNAPSHOT OF KFH GROUP
MALAYSIA
&
SOUTH EAST ASIA
KUWAIT
BAHRAINBANGLADESH
TURKEY
UAE
OMAN
As at 31 December 2005On Consolidation
•Market Capitalisation : US$ 8,917 million
•Net Profit : US$ 406 million
•Asset : US$ 16,031 million
•Equity:US$ 1,849 million
• Single “A” rated by S&P, Moody’s Fitch JBCA
Page 5
TOPICS
Introduction to Kuwait Finance House
Background of Kuwait Finance House (Malaysia) Berhad
KFH Experience In Fund Management
Overview of Islamic Funds
Types of Islamic Funds
Asset Classes
Socially Responsible Investing (SRI) & Shariah Compatible Investing (SCI)
Challenges & Way Forward
Page 6
Granted Islamic Banking Licence by MOF Malaysia to commence operations with effect from 8 May 2005
Main Office : Level 17 & 18 Tower 2, MNI Twins, Jalan Pinang, Kuala Lumpur
First KFH Malaysia branch : Ground floor, Tower 2, MNI Twins, Jalan Pinang, Kuala Lumpur
Initial capital investment : RM380 million (US$ 100 million)
Current staff strength : 140
Commencement of operations : 8 August 2005
KUWAIT FINANCE HOUSE (MALAYSIA) BERHAD
Page 7
May 2004
• Bank Negara Malaysia approved the application of KFH to establish the first foreign Islamic bank in Malaysia.
• Granted Islamic Banking License by Minister of Finance Malaysia to commence operations.
5 May 2005
Aug 2005
• First branch opened in Kuala Lumpur and started its operation.
Dec 2005
• KFH (Labuan) Berhad, a wholly owned subsidiary of KFHMB, was granted offshore banking license.
February 2006
• Granted Islamic Dealer’s License by Securities Commission.
17 February 2006
• Official Opening by the Honorable Prime Minister of Malaysia.
KUWAIT FINANCE HOUSE (MALAYSIA BERHAD) : MILESTONES
• Bank Negara announced the issuance of three new Islamic banking licenses to foreign Islamic banks.
Sept 2003
Page 8
www.kfh.com.my
Page 9
TOPICS
Introduction to Kuwait Finance House
Background of Kuwait Finance House (Malaysia) Berhad
KFH Experience In Fund Management
Overview of Islamic Funds
Types of Islamic Funds
Asset Classes
Socially Responsible Investing (SRI) & Shariah Compatible Investing (SCI)
Challenges & Way Forward
Page 10
KFH EXPERIENCE IN FUND MANAGEMENTFunds under management exceed US$ 2 billion (KFH and client funds).Examples of funds managed by KFH :
Healthcare Fund (Nursing Home Operators in UK) Swedish Post Office FundPrime Industrial Property FundEthmaar Fund for UK PropertiesAlliance Property FundAl Soor FundBaitak Residential Real Estate FundMillenium Aircraft Leasing FundBAITAK Asian Real Estate Fund
These funds on average provide a cash yield of 8% and IRR of12%
Page 11
REPORT ON KFH FUNDS AT www.kfh.com
Page 12
TOPICS
Introduction to Kuwait Finance House
Background of Kuwait Finance House (Malaysia) Berhad
KFH Experience In Fund Management
Overview of Islamic Funds
Types of Islamic Funds
Asset Classes
Socially Responsible Investing (SRI) & Shariah Compatible Investing (SCI)
Challenges & Way Forward
Page 13
DEFINITION OF ISLAMIC FUND
Islamic funds are a group of specialised collective investment funds which offer investors the opportunity to invest their surplus cash in a diversified investment portfolio that are managed and selected by professional portfolio managers in accordance to Shariah principles.
AAOIFI defined Investment Funds as “Funds are investment vehicles, which are financially independent of the institutions that establish them. Funds take the form of equal participating shares / units, which represent the shareholders’/ unitholders’ share of the assets, and entitlement to profits or losses. The funds are managed on the basis of either Mudharabah or agency contract” (AAOIFI Financial Accounting Standard No 14, p. 422)
Islamic funds are a group of specialised collective investment funds which offer investors the opportunity to invest their surplus cash in a diversified investment portfolio that are managed and selected by professional portfolio managers in accordance to Shariah principles.
AAOIFI defined Investment Funds as “Funds are investment vehicles, which are financially independent of the institutions that establish them. Funds take the form of equal participating shares / units, which represent the shareholders’/ unitholders’ share of the assets, and entitlement to profits or losses. The funds are managed on the basis of either Mudharabah or agency contract” (AAOIFI Financial Accounting Standard No 14, p. 422)
Page 14
“Investment funds are permissible by Shariah. Because funds are a form of collective investment that continue throughout their term, the rights and duties of participants are defined and restricted by the common interest, since they relate to third parties’ rights. Hence, in case the Fund is managed on the basis of agency the shareholders’ / unitholders’ waive their right to management, redemption or liquidation except in accordance with the limitations and conditions set out in the statutes and by-law.” (AAOIFI Financial Accounting No 14, p. 422)
SHARIAH RULING IN RELATION TO INVESTMENT FUNDS
SHARIAH RULING IN RELATION TO INVESTMENT FUNDS
Page 15
STRUCTURE OF TYPICAL ISLAMIC FUND
MANAGERAdministers the operation
of the fund
TRUSTEECustodian of Assets
ASSETS(INVESTMENT PORTFOLIO)
FUNDDeed
INVESTORS (UNITHOLDERS)
ShariahCommittee
Page 16
ROLE OF THE SHARIAH COMMITTEE / SHARIAH ADVISOR
Ensuring the fund is managed and administered in accordance with Shariahprinciples.Providing expertise and guidance for the fund in all matters relating to Shariah, including the fund’s trust deed and prospectus, its structure and investment, and other operational and administrative matters.Monitoring the funds.Offering the investors with a peace of mind and confidence that their investments are managed based on Shariah principles.
Page 17
RELATIONSHIP BETWEEN FUND MANAGER AND INVESTORS & REMUNERATION
There are commonly two types of relationship between the fund manager and the investors :-
a) Mudharabah – management of the fund has been undertaken on a mudharabahbasis and the manager is acting as the Mudharib and the remuneration is by the way of a share of the profits generated by the funds.
b) Wakalah - management of the fund has been undertaken on a wakalah (agency) basis and the manager is acting as the agent and the remuneration is by way of a fixed fee arrangement, or the fee is calculated by reference to the value of the fund itself.
Page 18
TOPICS
Introduction to Kuwait Finance House
Background of Kuwait Finance House (Malaysia) Berhad
KFH Experience In Fund Management
Overview of Islamic Funds
Types of Islamic Funds
Asset Classes
Socially Responsible Investing (SRI) & Shariah Compatible Investing (SCI)
Challenges & Way Forward
Page 19
TYPES OF ISLAMIC FUNDS
ISLAMIC FUNDSProperty Funds
Leasing Funds
Commodity Funds
Aviation Funds
REITs FundsSukuk Funds
Hedge Funds
Equity Funds /Private Equity Funds
Shipping Funds
Mutual Funds / Unit Trust
Page 20
TOPICS
Introduction to Kuwait Finance House
Background of Kuwait Finance House (Malaysia) Berhad
KFH Experience In Fund Management
Overview of Islamic Funds
Types of Islamic Funds
Asset Classes
Socially Responsible Investing (SRI) & Shariah Compatible Investing (SCI)
Challenges & Way Forward
Page 21
ASSET CLASSES
Assets (investment portfolio) need to be screened to ensure its compliance with Shariah.Types of assets :a) Financial assets
SharesSukukEtc
b) Non-financial assetsReal propertyAviationShippingCommoditiesInfrastructure projectsEtc
Page 22
Shariah Compliant Equities / Shares
EQUITY SCREENINGEquity / Shares
Core Activities : No Prohibited Activities
Financial Ratio : Dow Jones Islamic Index, FTSE Islamic Index etc
Purification “Tainted” Income
Page 23
TOPICS
Introduction to Kuwait Finance House
Background of Kuwait Finance House (Malaysia) Berhad
KFH Experience In Fund Management
Overview of Islamic Funds
Types of Islamic Funds
Asset Classes
Socially Responsible Investing (SRI) & Shariah Compatible Investing (SCI)
Challenges & Way Forward
Page 24
SOCIALLY RESPONSIBLE INVESTING (SRI)
SHARIAH COMPATIBLE INVESTING (SCI)
EthicalSocial conscience & environmentalProactive by using financial muscle to encourage positive change
EthicalSocial conscience & environmentalReligious & based on Shariah principles
SOCIALLY RESPONSIBLE INVESTING (SRI) & SHARIAH COMPATIBLE INVESTING (SCI)
Need to build bridges
between SRI & SCI
Page 25
TOPICS
Introduction to Kuwait Finance House
Background of Kuwait Finance House (Malaysia) Berhad
KFH Experience In Fund Management
Overview of Islamic Funds
Types of Islamic Funds
Asset Classes
Socially Responsible Investing (SRI) & Shariah Compatible Investing (SCI)
Challenges & Way Forward
Page 26
CHALLENGES FOR ISLAMIC FUND MANAGEMENT INDUSTRY
CHALLENGESRegulatory and tax
issues
Product Development & Innovation
Human Capital – Skills & Expertise
Marketing & Distribution Channels
Building Credibility & Confidence
Competition with conventional funds
Shariah Harmonisation& Convergence
Risk Management
Page 27
CHALLENGES IN DEVELOPING BRUNEI INTO A REGIONAL HUB FOR ISLAMIC FUND MANAGEMENT
1. To close the gap between Brunei Shariah views & GCC / global Shariah views Shariahharmonization & convergence.
2. To provide a wide range of Shariah compliant assets, products & services to meet the needs of the investors.
3. To create a vibrant market with a good regulatory, legal, tax, accounting and Shariah framework.
4. To educate investors and enhance their awareness on Brunei financial products, instruments and services.
Page 28
ISLAMIC FUND MANAGEMENT DEVELOPMENT – WAY FORWARD
Both industry players and regulators should strive to improve value proposition of the Islamic market.
Build credibility by improving earning power, transparency, global Shariah compliance, excellent customer service and efficiency of delivery channels of Islamic financial products.
Regulators should strive to create a uniform reporting and disclosure basis of Islamic financial products.
Islamic financial market should increase market share and increase cross-border expansion.
Increase investment in human resource capability.
Knowledge sharing between different Islamic markets.
Page 29
Kuwait Finance House (Malaysia) Berhad
Level 18, Tower 2, MNI Twins
11, Jalan Pinang 50704, Kuala Lumpur
MalaysiaTEL : (+603) 2055 7777FAX : (+603) 2166 7999
www.kfh.com.my
Thank YouThank You