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Sunday, 15 March 2009

UK: Amiri finally launches first Shariah-compliant fund of hedge funds

Amiri Capital LLP, the London-based Shariah-compliant alternative investment management group, is finally launching the Amiri Equity Alternative Strategies (AEAS) fund. It was put on hold when the fund’s initial broker, Lehman Brothers, filed for bankruptcy in September last year. It is now reportedly been launched in cooperation with Newedge.
AEAS is Amiri’s first fund. Coronation, the London-based multi-manager, will oversee the AEAS fund, which plan to employ around ten underlying managers.
Bindesh Shah, one of Amiri’s founders, told Opalesque last year that the fund had the following unique aspects: (1) it is Shariah compliant, (2) it is operated within a single funds structure that has managed accounts (Amiri asks investment managers to run portfolios on a Shariah basis,) (3) it uses a screening methodology.
The AEAS fund has been certified as Shariah-compliant by a five-member Shariah Supervisory Committee chaired by Sheikh Hussain Hassan. Islamic law prohibits conventional shorting, hence the fund will use a promissory note-based contract system that will replicate the economic effects of shorting without compromising Islamic principles. This methodology works at the individual stock level and will be implemented by Newedge.
“The shorting system is such that prime brokers promise (to each other) to deliver the stock on a future date but at a price governed by a formula which we set today,” Bindesh Shah told Opalesque. “In doing that we achieve the exact economics of conventional shorting.”
The trick is to devise a new structure that retains the economics of shorting but takes away these issues, while maintaining the commercial viability of the fund, wrote Mr. Shah in a previous article. Not only must the managers be able to work within the structure, but the prime brokers must be able to implement it. Most of the legal documentation in the conventional hedge fund sector has been developed over the past 20 years, and much of it is unacceptable under Islamic law. This means a great deal of work with the prime brokers, a reengineering of their systems and the rewriting of legal documentation.
“We work very close with Coronation by which is a long standing FoFs house. There aren’t many conventional Shariah funds to choose from. Se we identify managers we like and we work with them to develop a Shariah compliant managed account. To find conventional managers who don’t have any experience of Shariah funds, Coronation does the usual due diligence work and we talk to them. Then we take care of the structures and the rating. We in effect put these managers onto a Shariah platform.”
In addition, Amiri has developed a proprietary system to screen equities for inclusion in the funds. The system, S3, scrutinises over 36,000 stocks worldwide to determine their suitability for inclusion in an Islamic fund.
The AEAS fund is targeting around $1bn in assets from Middle Eastern and Asian institutional investors.
As of Q3-08, the AEAS fund’s pro forma track record resulted in returns averaging circa 13-16% p.a. over a period of 5 years with downside protection and low levels of volatility.
Amiri Capital LLP was founded in early 2006 by Bindesh Shah and Richard Ellis and is backed by Olivant.
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