Sydney: A Shariah-compliant forestry fund has been launched by Sustainable Capital which is based in Luxembourg in order to lure Islamic investors along with those interested in green investment.
The company said that the fund has been launched with an aim to raise $100 million in the open-ended fund and the offering period is going to start from next Monday. The fund will be invested in the agricultural, biomass and forestry sectors.
Islamic finance is run according to the religious principles but the industry has only recently begun to stress the theme of wider social responsibility.
The fund's investment advisor, Michael Young, commented, “Sustainability has been a challenging conversation in the Gulf, as it was regarded as a competing asset class. But energy security cannot be built on one source alone.”
“Countries are now embracing diversification,” he added.
Forestry has to compete with a preference among many Islamic investors for more familiar real estate and hedge fund products.
In a bid to differentiate itself, Sustainable Capital has highlighted the inflation protection and steady-return qualities of its new fund, which will aim for a 15 percent rate of return net of fees.
Young said, “It would be reasonable for most long-term investors to allocate 5 percent of their portfolios to green investments, though some preferences may go as high as 10 percent.”
He highlighted, “A fund size of $30 million would make the product viable, but reaching its $100 million optimal size could take from three months to three years.”
“The ultimate aim is to raise $250 million,” he added.
According to consultants Ernst & Young, Capital-raising and achieving scale has been a problem for sharia-compliant fund managers, with 64 percent of the estimated 800 Islamic funds globally having less than $75 million in assets.
Sustainable Capital plans to use strategic partnerships to tap Gulf, Asian and European markets, in order to extend the firm's distribution capabilities and keep operating costs low.
Young informed, “We will seek at least two distributors in the Gulf, one focusing on Saudi Arabia. The firm sees the bulk of its investor base eventually coming from the Gulf and Asia.”
One reason for the lack of close ties between the Islamic and ethical investor communities is geographical: Islamic investors have strong roots in the Middle East and Southeast Asia, while the ethical investment industry has its strongholds in North America and Europe.
Sustainable Capital will use its asset-backed deals in green investment. Islamic finance also has an ideological emphasis on promoting real economic activity instead of pure monetary speculation. So firms such as Sustainable Capital see commonalities with ethical investment.
In March, a “green sukuk” working group was launched by the Climate Bonds Initiative, the Clean Energy Business Council of the Middle East and North Africa, and The Gulf Bond & Sukuk Association. Its aim is to promote issuance of sukuk to finance climate change investments and renewable energy projects.