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					Surviving and adapting in a downturn
Dear Investments Industry Leader,

On behalf of MEGA, it is with great pleasure that we introduce the 3rd annual edition of the Ernst & Young Islamic Funds & Investments Report (IFIR 2009),
which has rapidly established itself as an indispensable reference source for decision-makers in the industry.

Launched at the 5th Annual World Islamic Funds & Capital Markets Conference (WIFCMC 2009) held in Bahrain on the 25th and 26th of May 2009, this year’s Report
could not come at a more critical time as the global financial markets undergo a seismic shift. IFIR 2009 reflects the measures that the leading industry players are
taking as they seek to strengthen their market positions and renew growth strategies against the backdrop of the ongoing fall-out from the global economic crisis.

Notwithstanding the effects of the crisis in the international financial markets, major opportunities continue to exist for Islamic investments. This year’s Report will
probe how the Shari’ah-compliant funds industry can catalyse the next phase of growth, providing industry leaders with new insights as they seek to renew their
business strategies in a challenging global economic climate.

Our gratitude goes to leading audit and business advisory firm, Ernst & Young and their Islamic Financial Services Group led by Sameer Abdi, who have invested their
considerable international talent and resources in leading the research project and in developing the insights contained in this Report.

We hope that the content of this third annual edition of the Ernst & Young Islamic Funds & Investments Report will be useful in your own strategic planning activities
and will assist your organisation in its quest for success in this dynamic industry.

Yours sincerely,



David McLean
Managing Director
The 5th Annual World Islamic Funds & Capital Markets Conference
A MEGA Brand

                   Shaping the Future of the Islamic Finance Industry Since 1993
                   P.O. Box 72045, Dubai, UAE | t. +9714 343 1200 | f+971 4 343 6003
                   www.megaevents.net
                   MEGA Brands. MEGA Clients. Market Leaders.


                                                                                                                                                                           1
Islamic Funds and Investments
Report 2009
Surviving and adapting in a downturn
Disclaimer


The contents of the Islamic Funds and Investments Report 2009 are based on qualitative comments and hence provide a subjective assessment of
the current market. All quantitative comments are based on published information wherever possible. Where published reliable data was not
available, qualitative comments were made which may or may not reflect the true state of affairs. Information has been assimilated from secondary
sources, including published country, industry and institutional information, and primary sources, in the form of interviews with industry executives.


We are not expressing any assurance on the accuracy or completeness of the information obtained. Although this report has been documented
based on our understanding of Islamic financing activities to include only those activities that are deemed Shari’a compliant, no Shari’a opinion
whatsoever has been taken on this report. Hence, the contents of this report, in terms of the activities to be carried out, might not necessarily be
consistent with Shari’a in all cases, and the opinion of at least one Shari’a scholar should be taken before any further steps are made to implement
suggestions made in the report.


Whilst every care has been taken in the preparation of this report, no responsibility is taken by Ernst & Young as to the accuracy or completeness
of the data used or consequent conclusions based on that data, due to the respective uncertainties associated with any assumptions that have
been made.


This report was documented for the Islamic Funds and Capital Markets Conference 2009. No part of this document may be republished,
distributed, retransmitted, cited or quoted to anyone without prior written permission from MEGA Events and Ernst & Young.




                                                                                                                                                         3
    Contents




    1.       Introduction                                                                                             6
    2.       Macroeconomic Conditions                                                                                 11
    3.       Asset Classes and Products                                                                               20
    4.       Key Investment Segments                                                                                  30
    5.       Competition and Business Models                                                                          50
    6.       Key Business Risks                                                                                       58
    7.       Conclusions                                                                                              68




4        MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Introduction to the Islamic Funds and Investment Report 2009




Dear Investment Executive

On behalf of Ernst & Young, I would like to take this opportunity to introduce you to the Ernst & Young Islamic Funds and
Investments Report 2009.

The financial crisis over the past year has seen unprecedented turmoil in global financial markets. Panic and volatility
within global equity markets have pushed equity values to historical lows. Coupled with a correction in real estate prices,
this has forced investors to reconsider their choice of Islamic asset manager as well as asset allocation strategy.

IFIR 2008 highlighted the phenomenal rate of growth experienced in the Islamic asset management industry. The
landscape has changed significantly as the global economic crisis has taken hold. IFIR 2009 seeks to revisit the findings
of IFIR 2008, address the changes, and provide explanations.

Despite this setback, the fundamentals of the Islamic fund industry remain strong. With almost US$50 billion in fund assets
under management and a large, expanding and untapped Muslim population, there are likely to be considerable
opportunities in the future.

This is a time when strategic choices have to be made and market participants have to adapt to survive. I hope that this
report will serve as a catalyst by helping market participants formulate both ideas and the means to meet the challenges
that are prevalent in the current economic climate.

Sameer Abdi
Advisory Partner
Ernst & Young



                                                                                                                              5
    1. Introduction




6    MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Over the past year, there has been considerable activity in the Islamic funds market,
including unique fund launches and regulatory changes

                                                                                                                        October                   January 2009
                              May                                                             September                 Asian Finance             The Securities and                  February
                                                                          July
                                                                                                                        Bank and Corston-         Exchange Board of
                              ABN Amro                                                      Clifford Chance                                                                           IFSB adopt new
                                                    June                  The Dow Jones     advise on first ever
                                                                                                                        Smith Asset               India approves India’s
                                                                                                                                                                                      standard (IFSB 6)
                              launches a 4 year                           Islamic Market                                Management sign           first Islamic mutual
                              Shari’a compliant     Bursa Malaysia                          securitization of                                                                         Guiding Principles on
   March 2008                                                             GCC Index and the installment sales           distribution              fund
                              investment product    announces plans                                                                                                                   Governance for
                                                                          S&P GCC 40 index receivables in the           agreement for                    January
   AAOFI issues               in the Middle East    to launch palm oil-                                                                                                               Islamic Collective
                                                                          are launched                                  world’s first Shari’a
   new set of rules           with a focus on the   based commodity                         form of Sukuk                                                Dubai Shari’a Hedge          Schemes
                                                                                                                        corporate
   on sale of Sukuk           energy and basic      murabaha and                            certificates                                                 Fund Index, the first
                                                                                                                        governance fund,
                              resources sectors     Islamic securities                                                  to give GCC                      internationally
                                                    borrowing and                August                                                                  recognized Islamic
                                                                                                                        investors
           April                                    lending                                                             opportunity to                   hedge fund index, is
                                                                                 Deutsche Bank’s                                                         launched
           Jadwa Investment                                June                  ETF platform lists
                                                                                                                        invest in major                                                    February
                                                                                                                        ASEAN markets                              January
           introduces three Islamic                        Shari’a compliant     its first Shari’a       October                                                                           Eiger Green Coffee
           funds of funds                                  investment index      compliant ETFs on                              November                           The Falcom Shari’a      Fund is launched
                                                                                 the London Stock        Encore and
                                                           launched in India                                                                                       index, the largest
                                                                                 Exchange                Sumou Holding          Insynergy Asset
                                                           to encourage more                                                                                       Shari’a compliant
                                                                                                         launch first Saudi     Management
                                                           GCC investments                                                                                         index in terms of
                                                                                                         Islamic REIT; fund     launches UK’s first
                                                                                                                                                                   companies in the
                                                                                                         could reach            Shari’a complaint
                                                                                                                                                                   GCC, is launched
                                                                                                         US$1.3b                equity fund



                                                                                                                                         November
   March                      May            June                                August                            October               IFSB approves two           January
                              Jadwa           Indonesia launches                                                                         exposure drafts:
   Dubai Financial Market                                                        Saudi Arabia’s CMA                CIMB Islamic Bank                                 Scottish Widows
                              Investment      the International                                                                          Capital Adequacy
   issues first Islamic                                                          allows foreign                    launches FXOP-I,                                  Investment
                                                                                                                                         Requirements for
   standards on trading of    launches        Center for                         investors to buy                  which allows                                      Partnership and Manar March
                              Africa’s first  Development in                                                                             Sukuk Securitizations
   shares on DFM                                                                 listed shares                     customers to                                      Financial Investment Nasdaq Dubai begins
                              Shari’a         Islamic Finance, a                                                                         and Real Estate
                                                                                 through swap                      hedge their foreign                               agree to set up SWIP listing Dubai Gold
                              compliant       regulatory body                                                                            Investments and
                                                                                 agreements                        exchange risk                                     Saudi Asset           Securities, an Islamic
                              investment, the                                                                                            Guiding Principles on
                                                                                                                                                                     Management            exchange-traded
                              Africa Fund                        July                                                                    Governance of Islamic
                                                                                                          October                        Collective Investments                            commodity
                                                                  First Islamic venture                                                  Schemes
                                                                  capital fund is                         International                                           January
                                                                  launched by                             Islamic Financial
                                                                  Malaysia Venture                        Market launches                                         Fairfax Middle East
                                                                  Capital Management                      first standardized                                      launches an Islamic
                                                                                                          master agreement                                        Russian property fund
                                                                                                          for treasury                                            worth US$500m
                                                                                                          placement in
                                                                                                          Islamic finance

Source: Islamic Finance News, Ernst & Young analysis                                                               Note: This timeline is not exhaustive and intends to provide only a summary of major events

                                                                                                                                                                                                                    7
    However, growth has stalled from historical highs




                                                                               Global Islamic Funds Industry
    Estimated AuM (US$b)                                                                                                                                     Number of funds

           50                                                                                                                                                   800
                                                                                                                                     43              44
           45                                                                                                           41                                      700
           40
                                                                                                        34                                                      600
           35
                                                                              29                                                                                500
           30
                                                     23
           25                                                                                                                                                   400
                            20
           20                                                                                                                                                   300
           15
                                                                                                                                                                200
           10
             5                                                                                                                                                  100

             0                                                                                                                                                  0
                           2003                    2004                     2005                      2006              2007        2008           Q1 2009

                                             Assets under management (AuM)                                               Number of Islamic funds




    Source: Eurekahedge, Zawya, Ernst & Young analysis

8          MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Whilst the number of new funds launched has declined and the number of funds
being liquidated has risen


                                                     Global Islamic Funds - Annual Launches and Liquidations

             Number of
             funds
                                                                     173
              180

              160

              140

              120
                                   98
              100
                                                                                             78
                80

                60

                40
                                                                                                         19
                20                                                                11                                      11
                                               7                                                                                   6

                     0
                                        2006                               2007                   2008                      Q1 2009


                                                        Number of Islamic funds launched      Number of Islamic funds liquidated




Source: Zawya, Eurekahedge, Ernst & Young analysis

                                                                                                                                       9
     Islamic asset management has been impacted by the global recession - in order to
     survive the current downturn, participants will need to adapt




                                                                         Macro                                         Asset
                                                                        economic                                    Classes and
                                                                        Conditions                                   Products


                                                                                               Islamic Asset
                                                             Key                               Management
                                                                                                                         Key Investor
                                                           Business
                                                                                                                          Segments
                                                            Risks

                                                                                               Competition &
                                                                                                 Business
                                                                                                  Models




10     MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
2. Macroeconomic Conditions
     GCC and Asia have not been immune to the global recession - liquidity is now
     subsiding




                                                                         Macro                                        Asset
                                                                        Economic                                    Classes &
                                                                        Conditions                                  Products


                                                                  Islamic Asset
                                                     5. Key        Management
                                               The global recession has led to market corrections
                                                                                    3. Investor
                                                   Business                         has shrunk
                                               and global assets under management Segments for
                                                     Risks
                                               the first time since 2002
                                                                     not been insulated from the
                                               GCC and Asia have4. Competition
                                               downturn               & Business
                                                                        Models
                                               Reduced oil revenues and a drop in global trade flows
                                               have decreased economic output in the GCC and
                                               Asia respectively


12     MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
                                                                                                                                                                                                         13




                                                                                                                                                                               9-Mar-09
                                                                                                                                                                               9-Jan-09
                                                                                                               Index return = -50%




                                                                                                                                                                               9-Nov-08
                                                                                                                                                                               9-Sep-08
                                                                                                                                                                               9-Jul-08
The global recession has resulted in a severe market correction




                                                                                                                                                                               9-May-08
                                                                                                                                                                               9-Mar-08
                                                                                                                                                                               9-Jan-08
                                                                                                                                                                               9-Nov-07
                                                                                                                                                                               9-Sep-07
                                                                  The MSCI World Index




                                                                                                                                                                               9-Jul-07
                                                                                                                                                                               9-May-07
                                                                                                                                                                               9-Mar-07
                                                                                                                                                                               9-Jan-07
                                                                                                                                                                               9-Nov-06
                                                                                                                                                                               9-Sep-06
                                                                                                               Index return = 40%




                                                                                                                                                                               9-Jul-06
                                                                                                                                                                               9-May-06
                                                                                                                                                                               9-Mar-06
                                                                                                                                                                               9-Jan-06
                                                                                                                                                                               9-Nov-05
                                                                                                                                                                               9-Sep-05
                                                                                                                                                                               9-Jul-05



                                                                                         Index level
                                                                                                                                                                               9-May-05




                                                                                                                                                                                          Source: MSCI
                                                                                                       1,700


                                                                                                                                     1,500


                                                                                                                                             1,300


                                                                                                                                                     1,100


                                                                                                                                                             900


                                                                                                                                                                   700


                                                                                                                                                                         500
     As a result, the global asset management industry has experienced its first decline
     (in AuM) since 2002


                                                                                Global Asset Management Industry

                                                                                                                                                                                  Number of funds
       Estimated AuM US$
                                                                                                                                                                                          (‘000)
       trillion
        30                                                                                                                                                                                  80
                                                Dot-com Crisis                                                                                               Financial Crisis
                                                                                                                                                          26.2
                                                                                                                                                                                            70
        25
                                                                                        2003-2007 AuM CAGR = 18%                            21.8                           21.7
                                                                                                                                                                                            60

        20                                                                                                                 17.7
                                                                                                                                                                                            50
                                                                                                           16.2

                                                                                       14
        15                                                                                                                                                                                  40
                        11.8                 11.6                11.3
                                                                                                                                                                                            30
        10

                                                                                                                                                                                            20

          5
                                                                                                                                                                                            10


          0                                                                                                                                                                                 0

                        2000                 2001                2002                 2003                 2004            2005             2006          2007          Q3 2008


                                            Worldwide Total Net Assets of Mutual Funds                                            Worldwide Total Number of Mutual Funds


     Source: National Mutual Funds Association, Ernst & Young analysis                                                                                              Note: The data is for 44 countries

14            MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
A sharp fall in oil prices is expected to cause a significant reduction in economic
growth across the GCC


                                           Global Average Crude Oil Price and Total Nominal GDP in the GCC



              US$ billion                                                                                                        US$ per barrel

                                                                                                                                    140
                      1,200
                                                                                            1,030                        1,033
                                                                                                                                    120
                      1,000                                                                                     908
                                                                                     824              813                           100
                         800                                                  737
                                                                  623                                                                80
                         600                        483                                                                              60
                                     405
                         400                                                                                                         40

                         200                                                                                                         20

                            0                                                                                                        0

                                    2003           2004          2005         2006   2007   2008     2009e     2010e     2011e

                                           Nominal GDP (US$b)                                Global Average Crude Oil Price (US$)




Source: Global Insight, Qwest Investment Management, Ernst & Young analysis

                                                                                                                                                  15
     Consequently, GCC government surpluses are expected to decrease



                              Global Average Crude Oil Price and Current Account Balances of Governments in the GCC



                   US$ billion                                                                                                                                US$ per barrel

                                                                                                                                                                 140
                            350
                                                                                                                        288                                      120
                            300
                                                                                                                                                                 100
                            250
                                                                                          204             195                                                     80
                            200                                           163
                                                                                                                                                                  60
                            150                                                                                                                        114
                                                           90                                                                                96
                                                                                                                                                                  40
                            100                                                                                                   83
                                           52
                              50                                                                                                                                  20

                                 0                                                                                                                                0

                                         2003            2004            2005            2006            2007           2008     2009e     2010e      2011e
                                                            Current Account Balance (US$b)                               Global Average Crude Oil Price (US$)




     Source: Global Insight, Qwest Investment Management, Ernst & Young analysis

16         MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Liquidity growth in the GCC will slow



                                            Global Average Crude Oil Price and Total M1 Liquidity in the GCC



               US$ billion                                                                                                        US$ per barrel

                                                                                                                                      140
                     300
                                                                                                                            243       120
                     250                                                                                         229
                                                                                                      219
                                                                                            210                                       100
                     200                                                             185
                                                                                                                                       80
                                                                              143
                     150                                        129
                                                113                                                                                    60
                                  92
                     100                                                                                                               40

                       50                                                                                                              20

                        0                                                                                                               0

                                 2003           2004           2005           2006   2007   2008     2009e      2010e      2011e

                                                          M1 Money Supply (US$b)             Global Average Crude Oil Price (US$)




Source: Global Insight, Qwest Investment Management, Ernst & Young analysis

                                                                                                                                                   17
     Meanwhile, countries in South East Asia are experiencing a slowdown in both
     exports and domestic demand, reducing economic output


                                   Combined Merchandise Exports, Imports and Nominal GDP in Malaysia and Indonesia



                     US$ billion

                              900                                                                                                                      822
                              800                                                                                        733                 724
                              700                                                                                                  656
                                                                                                           619
                              600                                                          521
                              500                                          424
                                                           382
                              400          345
                              300
                              200
                              100
                                  0
                                           2003            2004            2005            2006            2007          2008     2009e     2010e     2011e

                                   Nominal GDP (US$b)                          Merchandise Imports (US$b)                       Merchandise Exports (US$b)




     Source: Global Insight, Datamonitor, Ernst & Young analysis

18          MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Reduced economic activity, coupled with a drop in bank financing, has resulted in
reduced money supply growth


                                                        Total M1 Liquidity in Malaysia and Indonesia




                    US$ billion

                        140                                                                                    129
                                                                                                       115
                        120
                                                                           100       103      101
                        100
                                                                   78
                          80
                                                 59       62
                          60         53

                          40

                          20

                            0
                                    2003         2004    2005     2006     2007     2008     2009e     2010e   2011e

                                                          M1 Money Supply (US$b)




Source: Global Insight, Ernst & Young analysis

                                                                                                                       19
     3. Asset Classes and Products




20    MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Asset classes have been adversely affected by the global recession - liquidity and
stability have become key investment criteria




                             Macro                         Asset
                            Economic                     Classes &
                            Conditions                   Products


                                         Islamic Asset
                        5. Key           Management
                                                          3. Investor
                      Business                             real estate,
                  Asset classes, particularly equities andSegments
                        Risksadversely affected by the global recession
                  have been
                  Asset classes that offer liquidity and low volatility have
                                      4. Competition
                  gained in popularity & Business
                                           Models




                                                                                     21
     Geographic (Middle East) and asset class (equities) concentration remains high



                                                                 Islamic Asset Distribution (Funds Size US$ million)


                                                                                                                                                                           82
                                                    10,141
                                                                                 1,373                      2,906        1,433
                 Equity                                                                                                                       279


                                                                                  39
        Fixed Income                                5,504                                                    856



                  Cash                               1,971                      2,658                        409


                                                                                                                                                                           85
     Real Estate and                               3,431                          253                        1,021       406
      Private Equity


         Commodities                                 462                         3,437




             Balanced                                291                         266                         423



                 Other                             1,463                         262                        288          568



                                               Middle East                      Global                       Asia        North            Emerging                      Europe
                                               and Africa                                                               America            Markets


     Source: Eurekahedge, Zawya, Ernst & Young analysis                                                                           Note: Bubble size denotes the size of the funds in US$ million

22         MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Equity asset classes have performed poorly in 2008 - volatility continues



                                                              Islamic Indices                                                                                                               Islamic Equity Funds - Average Returns
Index level                                                   DJ US Islamic                                 Global Islamic                                                                           Top Quartile Average Return                      Average Return

100%
                                                                                                                                                                                      60%
                                                                                                                                                                                                              51.7%
                                                                                                                                                                                      50%
  80%
                                                                                                                                                                                      40%

  60%                                                                                                                                                                                        27.0%
                                                                                                                                                                                      30%
                                                                                                                                                                                                               23.0%
                                                                                                                                                                                      20%
  40%
                                                                                                                                                                                      10%                                                                    4.8%
                                                                                                                                                                                             3.4%
  20%                                                                                                                                                                                  0%
                                                                                                                                                                                                                                                                -3.7%
                                                                                                                                                                                              2006             2007                     2008               Q1 2009
                                                                                                                                                                                     -10%
   0%                                                                                                                                                                                -20%
        Jan-05

                 Apr-05



                                   Oct-05

                                            Jan-06

                                                     Apr-06



                                                                        Oct-06

                                                                                 Jan-07

                                                                                          Apr-07



                                                                                                            Oct-07

                                                                                                                     Jan-08

                                                                                                                              Apr-08



                                                                                                                                                Oct-08

                                                                                                                                                         Jan-09
                          Jul-05




                                                               Jul-06




                                                                                                   Jul-07




                                                                                                                                       Jul-08




                                                                                                                                                                  Apr-09
                                                                                                                                                                                                                                       -20.9%
                                                                                                                                                                                     -30%
 -20%
                                                                                                                                                                                     -40%                                                  -39.0%

 -40%                                                                                                                                                                                -50%




                                                                         “There’s a herd mentality in the market at the moment. Investors are panicking and trying
                                                                                        to redeem their investments, driving down markets further."

                                                     “Prices are bottoming out and we expect people to start coming back to the market and take advantage
                                                                                          of historically low prices."

                                                                                                                                                                     Corporate interviews



Source: Zawya, Eurekahedge, Ernst & Young analysis                                                                                                                                                                                 Note: Data includes returns of 245 funds

                                                                                                                                                                                                                                                                              23
     Sukuk issuance has slowed as widening spreads are making returns more attractive



                              Global Sukuk Issuance                                                                          Islamic Fixed Income Funds - Average Returns
                            Middle East             Rest of World                                                                       Top Quartile Average Return              Average Return
         US$m
                                                                                                                        9%       9%
                                                                     47,099
      50,000                                                                                                                                         8%
                                                                                                                        8%

                                                                                                                        7%                                            7%
      40,000
                                                                                                                        6%

      30,000                                               27,167                          27,512                       5%

                                                                                                                        4%        4%                                                        4%
      20,000                                                                    15,516                                  3%                           3%
                                                10,758                                                                  2%
      10,000                5,817      7,210
                                                                                                                        1%                                             1%                    1%
                  986
                                                                                                                        0%
           0
                                                                                                                                 2006               2007              2008                Q1 2009
                  2002       2003      2004       2005       2006       2007      2008      2009e*
     *Deals announced




          “The Dubai government recently issued a bond with CDS spreads now approaching 600bps. Can you imagine what a Gulf-based corporate
                                                             bond issuance would be like?"

       “Some of the first issued Sukuk is approaching maturity. For the first time, we’re expecting renegotiation of terms. Nobody is lending and rather
                                                  than see a default - banks will be prepared to negotiate."

                                                                                              Corporate interviews



     Source: IFIS, Zawya Sukuk Monitor, Eurekahedge, Ernst & Young analysis                                                                                           Note: Data includes returns of 34 funds

24         MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Commodity prices declined during the second half of 2008, but signs of recovery are
emerging and returns in Q1 2009 have been strong


             Merrill Lynch Commodity Excess Return Index                                                                                                                                                                                                                                                   Islamic Commodity Funds - Average Returns
Index level                                                                                                                                                                                                                                                                                                            Top Quartile Average Return                   Average Return
900
                                                                                                                                                                                                                                                                                                    30%
800                                                                                                                                                                                                                                                                                                                            23.2%
                                                                                                                                                                                                                                                                                                    25%
                                                                                                                                                                                                                                                                                                                                                                             21.2%
700
                                                                                                                                                                                                                                                                                                    20%
600                                                                                                                                                                                                                                                                                                 15%
                                                                                                                                                                                                                                                                                                                              10.5%                                          10.0%
500                                                                                                                                                                                                                                                                                                 10%

400                                                                                                                                                                                                                                                                                                  5%         2.2%                                    1.8%

300                                                                                                                                                                                                                                                                                                  0%       2.2%

                                                                                                                                                                                                                                                                                                                2006           2007                      2008               Q1 2009
200                                                                                                                                                                                                                                                                                                 -5%

100                                                                                                                                                                                                                                                                                                 -10%

  0                                                                                                                                                                                                                                                                                                 -15%
                                                             3-Nov-05




                                                                                                                               3-Nov-06




                                                                                                                                                                                                 3-Nov-07




                                                                                                                                                                                                                                                                   3-Nov-08
      3-Jan-05




                                                                        3-Jan-06




                                                                                                                                          3-Jan-07




                                                                                                                                                                                                            3-Jan-08
                                       3-Jul-05




                                                                                                                                                                                                                                                                              3-Jan-09
                                                                                                         3-Jul-06




                                                                                                                                                                           3-Jul-07




                                                                                                                                                                                                                                             3-Jul-08
                 3-Mar-05
                            3-May-05


                                                  3-Sep-05



                                                                                   3-Mar-06
                                                                                              3-May-06


                                                                                                                    3-Sep-06




                                                                                                                                                     3-Mar-07
                                                                                                                                                                3-May-07


                                                                                                                                                                                      3-Sep-07




                                                                                                                                                                                                                       3-Mar-08
                                                                                                                                                                                                                                  3-May-08


                                                                                                                                                                                                                                                        3-Sep-08




                                                                                                                                                                                                                                                                                         3-Mar-09
                                                                                                                                                                                                                                                                                                    -20%                                                    -20.1%

                                                                                                                                                                                                                                                                                                    -25%




                        “When oil prices were high, we were booming. Now, with oil prices hovering at $50 a barrel, the golden era of the Middle East is over."

      “Last year, agribusiness was in fashion. Every manager I know wanted to get into agriculture in some shape or form. This year, it’s all changed
                                                                       again."

                                                                                                                                                                                                                                                                                Corporate interviews




Source: Merrill Lynch, Eurekahedge, Zawya, Ernst & Young analysis                                                                                                                                                                                                                                                                                    Note: Data includes returns of 12 funds

                                                                                                                                                                                                                                                                                                                                                                                               25
     Increased volatility has made cash funds a popular asset class amongst investors



                                                3 Month LIBOR                                                                            Islamic Cash Funds - Average Returns
                        6                                                                                                                        Top Quartile Average Return                   Average Return

                      5.5                                                                                                          14%
                        5                                                                                                                                                        12.2%
                      4.5                                                                                                          12%
                                                                                                                                         10.5%
                        4
                                                                                                                                   10%
        Percent age




                      3.5
                        3
                                                                                                                                   8%                     7.2%
                      2.5
                                                                `
                        2                                                                                                          6%     5.2%
                      1.5
                                                                                                                                                                                  3.9%
                        1                                                                                                          4%                     3.4%

                      0.5                                                                                                                                                                              1.8%
                                                                                                                                   2%
                        0
                                                                                                                                                                                                         0.7%
                            J an-0 2
                            A pr-0 2
                            J ul-0 2
                            Oct -0 2
                            J an-0 3
                            A pr-0 3
                            J ul-0 3
                            Oct -0 3
                            J an-0 4
                            A pr-0 4
                            J ul-0 4
                            Oct -0 4
                            J an-0 5
                            A pr-0 5
                            J ul-0 5
                            Oct -0 5
                            J an-0 6
                            A pr-0 6
                            J ul-0 6
                            Oct -0 6
                            J an-0 7
                            A pr-0 7
                            J ul-0 7
                            Oct -0 7
                            J an-0 8
                            A pr-0 8
                            J ul-0 8
                            Oct -0 8
                            J an-0 9
                            A pr-0 9
                                                                                                                                   0%
                                                                                                                                          2006            2007                    2008                Q1 2009




                                             “In times of volatility and uncertainty, people are looking for safer and less volatile investment avenues."

                             “Investors want to invest in something where they will not lose money. They have been badly burnt and want to be protected.“

                                                                                                         Corporate interviews




     Source: Bloomberg, Eurekahedge, Zawya, Ernst & Young analysis                                                                                                             Note: Data includes returns of 49 funds

26                    MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Real estate funds have been affected by falling real estate prices



                                                                      Global REIT Index                                                                                                                                                 Islamic Real Estate Funds - Average Returns
 250                                                                                                                                                                                                                                               Top Quartile Average Return                Average Return

                                                                                                                                                                                                                                30%                        28%

 200                                                                                                                                                                                                                            25%
                                                                                                                                                                                                                                           21%

                                                                                                                                                                                                                                20%
 150
                                                                                                                                                                                                                                15%                                               13%
                                                                                                                                                                                                                                          11%
                                                                                                                                                                                                                                10%                           8%
 100

                                                                                                                                                                                                                                 5%

  50
                                                                                                                                                                                                                                 0%
                                                                                                                                                                                                                                           2006            2007                   2008               Q1 2009
                                                                                                                                                                                                                                -5%                                                                     -5%
   0                                                                                                                                                                                                                                                                                                    -5%
                                                                                                                                                                                                                                -10%


                                                                                                                                                                                               2-Nov-08



                                                                                                                                                                                                                     2-Mar-09
               2-Mar-06




                                                2-Sep-06

                                                           2-Nov-06



                                                                                 2-Mar-07




                                                                                                                  2-Sep-07

                                                                                                                             2-Nov-07



                                                                                                                                                   2-Mar-08




                                                                                                                                                                                    2-Sep-08
                                                                                                                                                              2-May-08
                          2-May-06




                                                                                            2-May-07
    2-Jan-06




                                                                      2-Jan-07




                                                                                                                                        2-Jan-08




                                                                                                                                                                                                          2-Jan-09
                                     2-Jul-06




                                                                                                       2-Jul-07




                                                                                                                                                                         2-Jul-08

                                                                                                                                                                                                                                                                                     -11%

                                                                                                                                                                                                                                -15%




                                                                             “We never invested in real estate. We knew it was a bubble and we were just waiting for it to burst.“

  “Demand for low end housing will probably stay the same but typically developments are aimed at the high end of the market. This is where the
                                                          pain has been keenly felt."

                                                                                                                                                                                                                 Corporate interviews




Source: Global Business Monitor International, Eurekahedge, Zawya, Ernst & Young analysis                                                                                                                                                                                        Note: Data includes returns of 17 funds

                                                                                                                                                                                                                                                                                                                           27
     The Middle East and Africa, Asia and Global mandates account for the vast majority
     of all Islamic funds


                                              Target Market of Annually Launched Global Islamic Funds (Number of Funds)

         100%
                                      6%                                                                           7%                          7%
                                      6%                                     6%                                                                                            Emerging Markets
           90%                                                                                                     6%                          4%
                                                                                                                                               4%
                                     12%                                                                           6%
           80%                                                              20%
                                                                                                                                                                           Europe
           70%                                                                                                                                27%
                                                                                                                  26%
           60%
                                     25%
                                                                                                                                                                            North America
                                                                            32%
           50%

           40%                                                                                                                                32%                          Global
                                                                                                                  30%
           30%
                                     51%                                                                                                                                 Middle East and
           20%                                                              39%                                                                                           Africa
           10%                                                                                                    25%                         26%
                                                                                                                                                                           Asia
             0%

                                     2004                                   2006                                   2008                       2009e




     Source: Zawya, Eurekahedge, Ernst & Young analysis                                                                   Note: The above analysis includes 496 Islamic funds for which data was available

28         MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Shari’a compliant asset classes have experienced turmoil and volatility




                                              How asset classes performed - 2009 and 2008 results


                   Equities
                   Equities             Fixed Income
                                        Fixed Income                 Cash
                                                                     Cash            Commodities
                                                                                     Commodities            Real Estate
                                                                                                            Real Estate            Private Equity
                                                                                                                                   Private Equity

               Large outflows
                Large outflows         Moderate inflows
                                        Moderate inflows       Moderate inflows
                                                                Moderate inflows    Large outflows
                                                                                     Large outflows       Moderate outflows
                                                                                                          Moderate outflows       Moderate outflows
                                                                                                                                  Moderate outflows
               Large corrections
                Large corrections      Decrease in
                                        Decrease in            Lower interest
                                                                Lower interest      Global recession,
                                                                                     Global recession,    Fall in valuations
                                                                                                          Fall in valuations      Distressed and
                                                                                                                                  Distressed and
               in both mature and
                in both mature and     corporate issues
                                        corporate issues       rates
                                                                rates               falling demand and
                                                                                     falling demand and   Distressed sales
                                                                                                          Distressed sales        secondary sales of
                                                                                                                                  secondary sales of
               emerging markets
                emerging markets       Increase in
                                        Increase in            Lower returns
                                                                Lower returns       corrections
                                                                                     corrections                                  commitments
                                                                                                                                  commitments
    2008
    2008




               Continued volatility
                Continued volatility   sovereign issuance
                                        sovereign issuance     Increased risk
                                                                Increased risk                                                    Dry-powder
                                                                                                                                  Dry-powder
               Limited recovery
                Limited recovery       Increased spreads
                                        Increased spreads      resulting from
                                                                resulting from
                                                               defaults
                                                                defaults




               Moderate inflows
                Moderate inflows       Moderate inflows
                                        Moderate inflows       Flat
                                                                Flat                Large inflows
                                                                                     Large inflows        Limited inflows
                                                                                                           Limited inflows        Flat
                                                                                                                                   Flat
               Current valuations
                Current valuations     Large sovereign
                                        Large sovereign        Low returns
                                                                Low returns         Commodity
                                                                                     Commodity            Current valuations
                                                                                                           Current valuations     Distressed assets
                                                                                                                                   Distressed assets
               appear attractive
                appear attractive      issues will create a
                                        issues will create a   Increased
                                                                Increased           rebound as global
                                                                                     rebound as global    appear attractive
                                                                                                           appear attractive      Increased
                                                                                                                                   Increased
               for long-term
                for long-term          benchmark yield
                                        benchmark yield        consideration of
                                                                consideration of    economy recovers
                                                                                     economy recovers     for long-term
                                                                                                           for long-term          investments
                                                                                                                                   investments
               investors
                investors              curve
                                        curve                  counterparty risk
                                                                counterparty risk                         investors
                                                                                                           investors              Alternative source
                                                                                                                                   Alternative source
   2009f
   2009f




               Active
                Active                                                                                    Distressed assets
                                                                                                           Distressed assets      of capital
                                                                                                                                   of capital
               management will
                management will                                                                           Demand exists for
                                                                                                           Demand exists for
               gain prominence
                gain prominence                                                                           lower end
                                                                                                           lower end
               as volatility is
                as volatility is                                                                          residential projects
                                                                                                           residential projects
               expected to
                expected to                                                                               in the GCC
                                                                                                           in the GCC
               continue
                continue




Source: Ernst & Young analysis

                                                                                                                                                        29
     4. Key Investor Segments




30    MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
The global recession has impacted investable wealth across investor segments and
resulted in a reallocation of assets




                 Investors have seen their investable wealth decline as
                 a result of the global downturn
                               1. Macro               2. Asset
                                                    reflect &
                 Asset allocation has changed to Classesnew market
                              Economic
                 realities - there has been a flight to safety
                              Conditions             Products


                                     Islamic Asset
                        Key          Management
                                                      Key Investor
                      Business
                                                       Segments
                       Risks

                                     Competition
                                     & Business
                                       Models




                                                                                   31
     Islamic asset management is concentrated in the GCC and Malaysia



                                                                Global Islamic Funds by Asset Manager (Q1 2009)




                                                                                                 5       30            2
                                                                                                                  10
                                                                                                     8
                                                                                                              4    5


                                                                                                                                   1
                                                  8            USA                                                                 1                                         1

                                                              ~1,423                                 2
                                                                                                                                       4         95
                                                                                                                               5                  24 1         18
     Islamic AuM                                                1
                                                                                                                                           136           65
                                                                                                                                                                    2
     by Country                                         4

     (US$b)                                                                                                                                                                                         Malaysia
                                                                                                                  2                                                              2                  ~4,579
                                                                                                                                                                                          164
           10+
                                                                                                                                                                                     25   4
                                                                                                                                                         KSA        Kuwait
           1 – 10                                                                                                                                                                         26
                                                                                                                                                      ~19,286       ~3,771
           0.5 – 1
                                                                                                                                                      Bahrain        UAE
           0.1 - 0.5                                                                                                                                  ~1,238        ~5,524
                                                                                                                                                                                                1

                                                                                                                           8
           0.01 – 0.1




                                                                                          Note: Funds per country include those managed by players headquartered in that respective jurisdiction. Boxes show total
     Source: Eurekahedge, Zawya Funds Monitor, Ernst & Young analysis                                                                                                        AuM of Islamic funds in US$ billion.

32         MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
But there are still significant untapped markets in Asia and MENA


                                                          Global Estimated Muslim Populations in 2008




                                                                                                      Turkey           Iran
                                                                                                       ~71m           ~64m

                                                                       Egypt
                                                                       ~71m

Estimated                                             Algeria         Morocco
Muslim                                                 ~33m            ~32m
Populations
in 2008
                                                                                                                                                               Indonesia
      100m +                                                                                                                                                     ~207m

      50 - 100m
                                                                                Nigeria
      10 – 50m                                                                  ~64m
                                                                                                               Pakistan         India
      5 – 10m                                                                                                   ~160m         ~151m

      1 – 5m                                                                                                        Bangladesh
                                                                                                                       ~132m
      Under 1m




Source: CIA World Fact book; Global Insight; Ernst & Young analysis                       Note: Muslim populations have been determined by applying percentages to 2008 population data.

                                                                                                                                                                                           33
     There are seven significant investor segments in Islamic markets



               Individual                                                                                 Quasi Institutional                                                       Institutional

                             Mass Affluent                                                                 Awqaf and Endowments                                                     Takaful
           Individuals with liquid wealth of                                        Awqaf focus on long-term real estate                                          With Shari’a compliance a necessity,
           US$50k to US$500k and a high                                             and cash holdings with Shari’a                                                Takaful operators represent a growing
           propensity to invest in Shari’a                                          compliance being a necessity.                                                 part of the Islamic investor community.
           compliant products.
                                                                                    University endowments are becoming
                                                                                    more prominent, with the main aim
                                                                                    being long term capital growth.


                                   HNWI                                                                                                                                  Sovereign Wealth Funds
           Individuals with financial assets of at                                                                                                                While SWFs investments have taken a
           least US$1m.                                                                                                                                           hit, they still represent a significant part
                                                                                                                                                                  of the investment landscape.
           In general, these individuals prefer
           Shari’a compliant products, but it is not                                                                                                              Most SWFs do not have a strictly
           a compulsory pre-requisite.                                                                                                                            Islamic mandate but do adopt an ethical
                                                                                                                                                                  investment strategy.

                                                                                                                                                           e/
                                                                                                                                                        bl                     Pension Funds
                                  UHNWI                                                                             by                               ira
                                                                                  Propensity to consume




                                                                                                                                                    s         y
                                                                                                                    ed              le            de sor
                                                                                                                 nc                             y
                                                                                    Shari’a compliant




           Individuals with financial assets in                                                                                   ab         hl       pu
                                                                                                                                                         l
                                                                                                                                                                  Pension funds, as large institutional
                                                                                                             flue urn           er        ig
                                                                                                                     t     ef            H          m
           excess of US$30m.                                                                               In      re    Pr                      Co               investors, do not have a high propensity
                                                                                                                                                                  to consume Islamic products. However,
           Similar to the HNWI segment, these                                                                                                                     they are an increasingly important
           individuals prefer Shari’a compliant                                                                                                                   investor class that do engage with
           products, but it is not compulsory.                                                                                                                    Islamic financial institutions.


34    MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
           Individual                                                    Quasi Institutional                                                   Institutional

Mass Affluent: A growing segment that demands simple and liquid products

       Market Size

                                                                                                                                   Estimated Market Size
                                                                                                                                   2008:
                                                                                                                                   US$284 billion
                            Liquid assets held by mass affluent individuals (in US$ billion)


                                                                                                                                   Estimated Change in
                                                                                                                                   Market Size from 2007:
                                                                                                                                   -20%
                                                                                                222
                                                                  169                                                                         In 2008, the value of
                                           147                                                                                                liquid assets of mass
                     147                                                     135
                                                                                                                                              affluent individuals in the
                                                                                                                                              GCC was US$135b. This
                                                                                                                                              is expected to grow to
                                                                                                196                                           US$222b by 2013
                                                                  187
                     137                   157                               149
                                                                                                                                              Asian mass affluent
                                                                                                                                              individuals had liquid
                                                                                                                                              assets of US$149b in
                     2005                  2006                   2007      2008e              2013f
                                                                                                                                              2008. This is expected to
                                                                                                                                              grow to US$196b by 2013
                                                         GCC               Asia



                                                                                                                               Note: Asia includes Malaysia, Pakistan and Indonesia
                                                                                         Growth rate of 5.6% assumed for Asia and 10.5% for the GCC (based on historical growth)
Source: Datamonitor Global Wealth Model, Ernst & Young analysis
                                                                                                        Liquid assets include onshore assets excluding property and pension assets

                                                                                                                                                                                      35
                Individual                                                              Quasi Institutional                              Institutional

     Mass Affluent: A significant flight to safety has occurred

                                                                                                                      Asset Allocation



                                       Between 70% and 90% of investors prefer Islamic products                            15%
        Shari’a                        Saudi investors are much more likely to demand Islamic investments
        Sensitivity                    than investors from other GCC states                                                 5%

                                                                                                                                                     55%

                                       Small ticket appetite means investment is made almost exclusively
                                       through mutual funds using local service providers
        Product
        Focus                          Desire for annuity and insurance linked products that require small
                                       monthly contributions
                                       Focus on simple, short tenor and safe products                                                                 5%
                                                                                                                           80%

                                       The mass affluent segment has seen a significant flight to safety
        Asset
        Class                          Equities have experienced a large sell off
                                       Funds are being moved to safer, shorter duration money market assets                                          40%
        Allocation




                                       Currently there is only a limited number of Islamic mutual funds with low
        Product/                       initial/minimum subscription requirements
        Asset                                                                                                              2008                      2009
                                       Lack of mixed asset allocation through balanced mutual funds or
        Class Gap                      exposure to international Islamic investments                                   Equity                  Fixed Income
                                                                                                                       Cash/Money Market       Real Estate
                                                                                                                       Alternatives

     Source: Industry interviews, Ernst & Young analysis

36       MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
           Individual                                                          Quasi Institutional                                                  Institutional

HNWI and UHNWI: Segment seeking adequate returns and hassle-free redemption arrangements

       Market Size

                                                                                                                                                   In 2008, the total wealth
                                                                                                                                                   of HNWI and UHNWI in
                                                                                                                                                   the Middle East was
                                                                                                                                                   US$1,400b. This is
                               Value of assets held by HNWI and UHNWI (in US$ trillion)                                                            expected to grow to
                                                                                                                                                   US$2,800b by 2013

                                                                                                                                                   Asian HNWI and UHNWI
                                                                                                                                                   had total wealth of
                                                                                                      2.8
                                                                                                                                                   US$7,600b in 2008. This
                                                                                                                                                   is expected to grow to
                                                                  1.7                                                                              US$11,100b by 2013
                                            1.4
                      1.3                                                               1.4


                                                                                                     11.1
                                                                  9.5
                                            8.4
                      7.6                                                               7.6




                     2005                  2006                  2007                 2008e         2013f


                                                         Middle East                 Asia-Pacific



                                                                                                     Growth rate of 7.9% assumed for Asia-Pacific and 15.3% for the Middle East (based
Source: Capgemini and Merrill Lynch World Wealth Report 2006, 2007, 2008; Ernst & Young analysis                                                             on historical growth rates)

                                                                                                                                                                                           37
                Individual                                                              Quasi Institutional                                                                   Institutional

     HNWI and UHNWI: Segment has witnessed a sizeable decline in assets but growth is expected

            Market Size

                                                                                                                                                                   Estimated Market Size
                                                                                                                                                                   2008:
                                                                                                                                                                   US$184 billion
                                        Liquid assets held by HNWI and UHNWI (in US$ billion)

                                                                                                                                                                   Estimated Change in
                                                                                                                                                                   Market Size from 2007:
                                                                                                                                                                   -20%

                                                                                                                               168
                                                                                                                                                                             In 2008, the value of
                                                                         124
                                                                                                                                                                             liquid assets of HNWI and
                                                  107                                            99                                                                          UHNWI in the GCC was
                           106                                                                                                                                               US$99b. This is expected
                                                                                                                                                                             to grow to US$168b by
                                                                                                                                                                             2013
                                                                         106                                                   116
                            74                     87                                            85
                                                                                                                                                                             Asian HNWI and UHNWI
                                                                                                                                                                             had liquid assets of
                                                                                                                                                                             US$85b in 2008. This is
                         2005                    2006                   2007                  2008e                           2013f                                          expected to grow to
                                                                                                                                                                             US$116b by 2013
                                                                GCC                          Asia



                                                                                                                 Growth rate of 6.5% assumed for Asia-Pacific and 11.1% for the GCC (based on historical growth)
                                                                                                                                                                    Asia includes Pakistan, Malaysia and Indonesia
     Source: Datamonitor Global Wealth Model, Ernst & Young analysis
                                                                                                                                    Liquid assets include all onshore assets excluding property and pension assets

38       MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
           Individual                                                 Quasi Institutional                                        Institutional

HNWI and UHNWI: Seeking safe assets and capital preservation

                                                                                                              Asset Allocation


                                  Shari'a sensitivity depends on preference of the decision-maker
                                  Between 70% and 90% of investors tend to prefer Islamic products                20%                       20%
   Shari’a                        Their public profile furthers their desire to invest in Islamic products,
   Sensitivity                    particularly in more religious countries
                                  Prepared to invest in conventional products when there is no viable                                        5%
                                  Islamic alternative                                                             15%

                                  Unlikely to invest through mutual funds                                          <5%
                                  Utilise discretionary portfolios with specialised asset managers, both           <5%
   Product                        local and international, with whom relationships have been developed
   Focus                          Big-ticket appetite allows access to structured products                                                  50%
                                  Will demand opt-out clauses when investments are made in
                                  conventional products to avoid haram industries and excessive
                                  leverage
                                                                                                                  60%
                                  Witnessed a significant sell-off of equities and real estate assets as                                     <5%
   Asset                          steep price falls combined with high volatility has dampened their
   Class                          appetite
   Allocation                                                                                                                               20%
                                  Alternative investments have not been affected, possibly due to their
                                  long-term nature and relatively illiquid markets
                                  Money market assets have become the dominant asset class

                                  Ijarah (leasing) investments, particularly with tenures of 6-12 months,          2008                     2009
   Product/                       offer an attractive substitute for fixed income with reduced zakat           Equity                  Fixed Income
   Asset                          obligations
                                                                                                               Cash/Money Market       Real Estate
   Class Gap                      Islamic alternative and real estate investments which target emerging
                                  or mature international markets                                              Alternatives
Source: Industry interviews, Ernst & Young analysis

                                                                                                                                                      39
                   Individual                                                             Quasi Institutional                                                       Institutional

     Awqaf & Endowments: Burgeoning new segment requiring capital preservation and fund
     management
            Market Size

                                                                                                                                                              Estimated Market Size
         The most notable Awqaf                                Name             Country         Waqf Type                  Sectors Invested in                2008:
         specific foundations/bodies in
         the GCC include:                                      KAPF             Kuwait          Religious, Philanthropic
                                                                                                and Family
                                                                                                                           Financial services, real estate,
                                                                                                                           health, education and social
                                                                                                                                                              US$100 billion
               ƒ Kuwait Awqaf Public                                                                                       services
                    Foundation (KAPF);
               ƒ Awqaf and Minors                              AMAF             UAE             Religious and              Financial services, real estate,
                    foundation (AMAF);                                                          Philanthropic              education and social services      Estimated Change in
               ƒ    Sharjah Awqaf General                      SAGS             UAE             Religious and              Real estate, education and         Market Size from 2007:
                    Trust (SAGS);                                                               Philanthropic              social services
               ƒ    Qatar Endowment                                                                                                                           +10-20%
                    Authority (QEA);                           QEA              Qatar           Religious, Philanthropic   Real estate, health, education
               ƒ    Ministry of Islamic Affairs,
                                                                                                and Family                 and social services

                    Endowments, Da’wah and
                    Guidance (MIAEDG);                         MIADEG           KSA             Religious, Philanthropic   Real estate, health, education
               ƒ    Ministry of Religious
                                                                                                and Family                 and social services

                    Affairs (MARA); and
               ƒ    Ministry of Justice and                    MARA             Oman            Religious and              Real estate, education and
                                                                                                Philanthropic              social services
                    Islamic Affairs (MOJIA).
                                                               MOJIA            Bahrain         Religious and              Real estate and social services
                                                                                                Philanthropic




         Several Waqf funds have also been structured as endowment funds with the principal aim of
         developing academic institutions.
                   1. The International Islamic University Malaysia (IIUM) Endowment Fund aims to raise fund to help students in their
                   studies.
                   2. The King Abdullah University of Science and Technology (KAUST) Endowment Fund has an endowment fund of
                   US$10 billion, considered to be the 6th largest endowment fund in the world.
                   3. Bahrain’s Waqf Fund for Research, Education and Training in Islamic Finance
                   The fund was established in March 2008 with capital of US$5.8 million.


     Source: Ministries of Justice and Islamic Affairs, Foundation and Awqaf sites, press releases

40         MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
            Individual                                               Quasi Institutional                                     Institutional

Awqaf & Endowments: Real estate is the dominant asset class with a small allocation to equities

                                                                                                          Asset Allocation


                                                                                                                5%                       5%

   Shari’a                        Shari'a compliance is a necessity for Awqaf
   Sensitivity                    Shari’a compliance is an important feature for the majority of
                                  endowment funds




                                  Invest in long term assets                                                   80%                       80%
   Product                        Purchase real estate as part of their operations as they hold large
   Focus                          amounts of land used for religious and philanthropic activities
                                  Equities constitute a minor portion of assets




                                  Asset allocation has remained static
   Asset                          Awqaf have a large proportion of their assets invested in real estate         5%                       5%
   Class                          assets, with a focus on long-term holdings
   Allocation                                                                                                   5%                       5%
                                  Endowment funds have witnessed a surge of assets in recent times,
                                                                                                               10%                       10%
                                  with the main aim being long-term capital growth. Endowment funds
                                  also have a large proportion of assets invested in real estate.

                                                                                                               2008                     2009
   Product/                                                                                                Equity                  Fixed Income
   Asset                          Long-term fixed income investments
                                                                                                           Cash/Money Market       Real Estate
   Class Gap
                                                                                                           Alternatives
Source: Industry interviews, Ernst & Young analysis

                                                                                                                                                  41
                Individual                                                              Quasi Institutional                                                                  Institutional

     Takaful: Large institutional segment with liquid assets requiring Shari’a compliant products

            Market Size
                     Global Gross Takaful Contributions (in US$ million)                                                3,768
                                                                                                                                  20                              Estimated Market Size
                                                                                                  3,364                  355      36
                                                                                                            18                                                    2008:
                                                                                                   317      32
                                                                            2,518                                       1,065                                     US$7.2 billion
                                                                                     11            951
                                                                             215                                                       Indian Sub-Continent
                                                     1,988                           21
                                                                8                                                                      Levant
                                                      181      17            692                                                                                  Estimated Change in
                               1,384                                                                                                   Africa
                                         5            544                                                                              South-East Asia            Market Size from 2007:
                                121     14
                                                                                                                        2,292          GCC
                                474                                                                2,046                                                          -15%
                                                                            1,579
                                                      1,238
                                770
                                                                                                                                                                             In 2008, the value of
                               2004                   2005                  2006                 2007e                  2008e                                                investable assets of
                     Total Takaful Operators Investable Assets (US$ million)                                                                                                 Takaful operators stood at
           12,000                                                                                                                                                            US$7.2b which is
                                                                                                                                                                             expected to grow to
           10,000                                                                                                                                                            approximately US$11.2b
                                                                                                                                                                             by 2012
             8,000
                                                                                                                                                Malaysia
             6,000                                                                                                                              GCC
                                                                                                                                                Consolidated
             4,000

             2,000
                                                                                                                                                                Note: Total investable assets include: government
                                                                                                                                                               Islamic papers, Islamic private debt securities and
                     0                                                                                                                                                   equity, other investments, foreign assets,
                           2005          2006          2007         2008e          2009f        2010f         2011f       2012f                                    investment accounts and Islamic MM, cash and
                                                                                                                                                                                  bank balances and other assets.
                                                                                                                                                                      GCC figures have been estimated by using a
                                                                                                                                                                                     sample of 8 GCC companies.
     Source: Company annual reports, Bank Negara Malaysia Annual Takaful Statistics 2007, Ernst & Young analysis
                                                                                                                                                                       A growth rate of 11.7% has been assumed.

42         MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
          Individual                                                Quasi Institutional                                                 Institutional

Takaful: A significant sell-off of equities and a move to safer, more liquid assets

                                                                                                                Asset Allocation


                                                                                                                        10%                                   10%
                                 Shari'a compliance is a necessity
  Shari’a                        A lack of depth in Islamic investments, particularly in the fixed income
  Sensitivity                    asset class, forces many operators to reinsure large portions of their
                                 risk
                                                                                                                        30%
                                                                                                                                                              40%

                                 Due to the long-term nature of their obligations, this segment is drawn
                                 to opportunities for capital appreciation
  Product
  Focus                          Equity investments made either through mutual funds or direct
                                 participation
                                 Islamic banks engaged for cash/deposits                                                                                      20%

                                                                                                                        60%

                                 In comparison to a year earlier, a greater proportion of Takaful
  Asset                          operators assets have been moved to safe assets
                                                                                                                                                              30%
  Class                          A significant sell-off of equities has occurred, with the subsequent
  Allocation                     funds being placed in safer cash and money market funds
                                 Limited real estate exposure


                                                                                                                        2008                                 2009
                                 Liquid investments in fixed income asset classes
  Product/                                                                                                         Equity                            Fixed Income
  Asset                          Listed/tradable products that can be easily exited
                                                                                                                   Cash/Money Market                 Real Estate
  Class Gap
                                                                                                                   Alternatives
 Source: Industry interviews, Ernst & Young analysis                                                        Note: 2008 data is for the GCC only, 2009 data includes Malaysia

                                                                                                                                                                               43
                Individual                                                                Quasi Institutional                                            Institutional

     SWF: Large investor group utilizing only sophisticated and proven fund managers

            Market Size
                                                                                              Value of assets (in US$ billion)                    Estimated Market Size
                                                                         0        100     200     300      400     500   600   700   800    900   2008:
                        Abu Dhabi Investment Authority - UAE                                                                                875   US$1,782–2,240 billion

                        SAMA Foreign Holdings - Saudi Arabia                                                     431
                                                                                                                                                  Estimated Change in
                         Kuwait Investment Authority - Kuwait                                     264                                             Market Size from 2007:
           Libyan Arab Foreign Investment Company – Libya                               100                                                       -10%

                        Investment Corporation of Dubai - UAE                       82
                                                                                                                                                         In 2008, it is estimated
                           Libyan Investment Authority - Libya                    65                                                                     that SWFs lost
                                                                                                                                                         approximately 25% of
                            Qatar Investment Authority - Qatar
                                                                                                                                                         their value due to the
                                                                                  60
                                                                                                                                                         downturn in equity
                                                                                                                                                         markets and others asset
                Fonds de Regulation des Recettes de I'Algerie                  47
                                                                                                                                                         classes. However, their
                                                                                                                                                         reserves have been
                            Brunei Investment Agency - Brunei                 35
                                                                                                                                                         replenished by current oil
                                                                                                                                                         and other revenues
                      Kazakhstan National Fund - Kazakhstan                  26
                                                                                                                                                         Estimated losses could
                                                                                                                                                         exceed over US$700b
                                                         Other GCC                  81


                                                   Other Non-GCC               39
                                                                                                    GCC             Non-GCC     Variation



     Source: SWF Institute, Deutsche Bank, Business Week

44         MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
           Individual                                               Quasi Institutional                                      Institutional

SWF: Investor segment badly affected by the global economic downturn

                                                                                                             Asset Allocation


                                                                                                                  5%
                                  The SWF segment is not predisposed to investing in Shari’a compliant                                  10%
   Shari’a                        investments but prefers ethical investments
                                                                                                                  20%
   Sensitivity                    Conventional financial institutions are not excluded from their
                                  investment strategies                                                                                 20%


                                                                                                                  20%
                                  Will invest through well established and reputable international brands,
                                                                                                                                        25%
                                  with whom long-term relationships have been established
   Product
   Focus                          Have single management limits which forces multiple relationships
                                  Conduct big-ticket investments




                                  SWFs have been badly affected by the global economic downturn                   55%                   45%
   Asset                          Equity investments in financial institutions have severely eroded as
   Class                          have some real estate investments
   Allocation                     Long and often passive investment positions should not substantially
                                  affect asset allocation; however changes in sector and geographic
                                  preferences may become apparent in the short-term.

                                                                                                                  2008                  2009
                                  Sophisticated structured product offerings and exposure to
   Product/                                                                                                   Equity               Fixed Income
                                  international markets
   Asset
                                  Products that can compete, in terms of price, returns, scale and service    Cash/Money Market    Real Estate
   Class Gap
                                  quality, with best-of-breed conventional offerings                          Alternatives
Source: Industry interviews, Ernst & Young analysis

                                                                                                                                                  45
               Individual                                                               Quasi Institutional                                     Institutional

     Pension Funds: Fast growing institutional segment requiring long-term asset managers

           Market Size

                                                                                                                                        Estimated Market Size
                                                                                                                                        2007:
                                                                                                                                        US$141 billion
                                    Public Pension Reserve Funds Assets (in US$ billion) - 2007

                                                                                                                                        Change in Market Size
                                                                                                                                        from 2006:

                                                                                                                        92.8            -10%




                                                               15.9



                 9.3             8.6
                                                                                                                               6.6

                                                 2.5                                                          2.4
                                                                               1.2             1.7


              Bahrain*        Saudi            UAE           Kuwait           Qatar          Oman         Pakistan Malaysia Indonesia               Note: * 2008 data, ** 2006 data
                              Arabia**                                                                                                        Size was estimated for certain GCC
                                                                                                                                            countries by taking average assets per
                                                                                                                                                employee as a proxy for fund size
                                                                                                                                               Change in market size was estimated
     Source: OECD, Ernst & Young analysis                                                                                                                             for GCC only

46         MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
           Individual                                                Quasi Institutional                                   Institutional

Pension Funds: Fast growing institutional segment requiring long-term asset managers

                                                                                                           Asset Allocation


                                                                                                               <5%
                                                                                                               <5%                    15%
                                   Have no Islamic requirements but this does not preclude involvement
   Shari’a                         in Islamic investments
   Sensitivity                     As awareness of Shari’a compliance grows, these funds will be                                      <5%
                                   increasingly pressured into allocating more to Islamic offerings

                                                                                                               50%                    30%
                                   International investments in listed instruments, conducted through
   Product                         international portfolio managers with a focus on mature markets
   Focus
                                   Local conventional and Islamic banks engaged for cash deposits
                                                                                                                                      15%

                                                                                                               10%
                                   Asset allocation has changed as increased investments have been
   Asset                           made in equities due to attractive valuations
   Class                           There has been a decrease in allocation to cash/deposits with short
   Allocation                      maturities, but this still remains a dominant asset class                   35%                    40%
                                   Fixed income is dominated by local government bonds but includes
                                   limited exposure to international issues



                                                                                                                2008                 2009
                                   Alternatives to cash/money market that provide attractive returns but
   Product/
                                   are low risk and allow for short tenures                                 Equity               Fixed Income
   Asset
   Class Gap                       Islamic mutual funds that can provide stable returns through exposure    Cash/Money Market    Real Estate
                                   to international equities in mature markets
                                                                                                            Alternatives
Source: Industry interviews, Ernst & Young analysis

                                                                                                                                                47
       The global economic downturn has reduced the risk appetite of key investors,
       particularly the individual investor segment and Takaful operators



                                                                     Typical Investment Returns Objective for Key
                                                                                  Investor Segments

                               Return
                                                                                                                             Capital
                                                                                                                           Appreciation
     Current Income                                                                              Total                                                           Capital Appreciation
                                                                                                Returns                                           Individual
        Moderate risk                                                                                                                             Investors         Significant risk
        Returns achieved                                                                                                                                            Returns achieved
        through income                                                                                                                                              through capital gains
                                                                           Current                                                      Takaful
        generation                                                                                                                                                  Requires a long-term
                                                                                                                                       Operators
                                                                           Income                                                                                   investment horizon


                                                                                                        Takaful                                  Other
                                                                             Individual                Operators
     Capital Preservation                                                    Investors
                                                                                                                                              Institutional      Total Returns
                                                                                                                                               Investors
        Little or no risk                                                                                                                                           Moderate level of risk
        Nominal returns that                           Capital                                                            Quasi                                     Returns obtained through
        are at least equal to                       Preservation                                                       Institutional                                capital gains and
        inflation                                                                                                       Investors                                   reinvested dividends
        Short investment                                                                                                                                            Requires a long-term
        horizon                                                                                                                                                     investment horizon
                                                                                                                                                          Risk
                                                                              Key:
                                                                              Shift in investor                        Past            Investor
                                                                              preference
                                                                                                                       Present         Investor

       Source: Industry interviews, Ernst & Young analysis

48        MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Islamic asset management has a potential revenue pool of over US$3.6 billion



                                                                                                                                                                       Illustrative
                       Shari’a Sensitive Investable Assets in the GCC and Asia
                                 by Investor Segment in 2008 (US$b)                                                                                   Potential Revenue Pool (2008)

                                                                                                                Estimated CAGR
                               Investable Assets and Shari’a Sensitive Portion
                                                                                                                  (2004-2008)                                  Shari’a Sensitive Assets

                             284                                                                                                                                         US$736b
       Affluents                                                                                                          ~10%
                            213

   HNWIs and                               184
                                                                                                                          ~12%
     UHNWIs                               138

   Awqaf and                                        100                                                                                                              Fee Assumption
                                                                                                                          ~10%
 Endowments                                         100
                                                                                                                                                                        25-50 bps
        Takaful                                             7.2
                                                                                                                          ~10%
      Operators                                             7.2

                                                                    141
        Pension                                                                                                           ~18%
                                                                   65
         Funds                                                                                                                                                         Revenue Pool
                                                                                             1,782
             SWF                                                                                                          ~15%
                                                                           213                                                                                       US$1.84-3.68b

  Total Shari’a
     Sensitive                                     736
        Assets

Source: Industry Interviews, Data Monitor, Ernst & Young analysis
Note: Total investable assets and Shari’a sensitive portion for investor segments are assumed using sources found in the investor segmentation and key markets sections of the report and supported by
industry interviews. Wealthy individuals and pension funds are for the GCC, Malaysia, Indonesia and Pakistan. Takaful operators are for the GCC and Malaysia, SWFs are for the MENA and Asia and
Awqaf is for the Middle East.

                                                                                                                                                                                                         49
     5. Competition and Business Models




50    MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Unfavorable market conditions, shifting investor preferences and a fragmented
competitive landscape could result in a shakeout of industry players




                  Average fund sizes remain small - increased
                  redemptions have resulted in fund liquidations
                  The competitive landscape for global Islamic fund
                             1. is fragmented - a shakeout appears
                  managementMacro                     2. Asset
                            Economic                 Classes &
                  likely
                            Conditions               Products
                  Fund managers need to decide whether to focus on
                  product development or distribution; returns or scale;
                                       Islamic Asset
                  and in-house or outsourced
                         Key          Management
                                                        Key Investor
                       Business
                                                         Segments
                        Risks

                                       Competition
                                       & Business
                                         Models




                                                                                51
     Fund sizes remain small with over 50% having AuM of US$ 20m or less



                                                                                      Number of Funds by AuM

                     249




                                                   92
                                                                                68

                                                                                                             40

                                                                                                                         10         15                        14


                      <20                         20-50                       50-100                      100-200       200-300   300-500                    >500
                                                                                                       US$ million




     Source: Zawya, Eurekahedge, Ernst & Young analysis                                                                                     Note: Data included 488 Islamic Funds

52         MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
 Two-thirds of all players manage less than US$100m in Islamic assets - the global
 competitive landscape is fragmented and a shakeout appears likely


Total size of funds
launched (US$m)                                                                               Global Islamic Fund Management Competitive Landscape
                                                                                                                                                                      The National Commercial Bank
                                                              Samba
                                                                                                                                                                      Total Funds: 19                                                                                                  ETFS Metal Securities Ltd
                                                              Total Funds: 9
                                                                                                                                                                      Total Value: US$ 6.3 Billion                                                                                     Total Funds: 5
                                                              Total Value: US$ 2.3 Billion
                                                                                                                                                                                                                                                                                       Total Value: US$ 2.9 Billion
                         Riyad Bank
                         Total Funds: 10
                         Total Value: US$ 1.38 Billion                                                                                                                            Public Mutual Berhad
                                                                                                                              Emirates Bank International PJSC
                                                                                                                                                                                  Total Funds: 14
                                                                                                                              Total Funds: 15
                                                                                               The Saudi British Bank                                                             Total Value: US$ 1.9 Billion
       Al Rajhi Bank                                                                                                          Total Value: US$ 1.7 Billion
                                                                                               Total Funds: 7
       Total Funds: 13                                                                                                                                                                                                                                                             Arabia Generale
                                                                                               Total Value: US$ 2.9 Billion
       Total Value: US$ 1.36 Billion                                                                                                                                                                                                                                               Total Funds: 1
                                                                                                                                                                                                                                                                                   Total Value: US$ 800 Million
                                                                                                                                                                                       United Development Company
                                                                                                                                                                                       Total Funds: 1
                                                                                                                                                                                                                                    Saturna Capital Corp
                                                                                                                                                                                                                                    Total Funds: 2
                                                                                                                                                                                                                                                                                                                            Color indicates type of
                                                                                                                                               Pacific Star Investment and
                                                                                         Abraaj Capital                                        Development Pte Ltd                     Total Value: US$ 600 Million                 Total Value: US$ 1.36 Billion                                                           Institution:
                                                                                                                                               Total Funds: 1
                                                                                         Total Funds: 1
                                                                                                                                               Total Value: US$ 600 Million
                                                                                         Total Value: US$ 1.7 Billion

                                                                                                                                                                                                                                   Oasis Crescent Management Company Limited
                                                                                                                                                                                                                                                                                                                                           Islamic
                                   Bank Albilad                                    Banque Saudi Fransi
600                                Total Funds: 5                                  Total Funds: 9                                                 Global Securities House
                                                                                                                                                  Total Funds: 7
                                                                                                                                                                                                                                   Total Funds: 2
                                   Total Value: US$ 607 Million                    Total Value: US$ 1.69 Billion                                                                                                                   Total Value: US$ 647 Million
                                                                                                                                                  Total Value: US$ 702 Million
                                                                                                                                                                                                                                                                                                                                          Conventional
550                                                           Arab National Bank
                                                              Total Funds: 5                                                                      Al Tawfeek Company For Investment Funds
                                                                                                                                                                                                                                          Oasis Global Management Company (Ireland) Limited
                                                              Total Value: US$ 512 Million                                                        Total Funds: 11
                                                                                                                                                                                                                                          Total Funds: 2
                                                                                                                                                  Total Value: US$ 529 Million
                  ADAM
                                                                                                                                                                                                                                          Total Value: US$ 647 Million                                                       Bubble Size indicates
500
         Kuwait Finance House
                                                          National Investments
                                                          Company
                                                                                                            CIMB-Principal Asset
                                                                                                                                               Global Investment House
                                                                                                                                                                                                                                                                                                                             number of funds
                                                                                                            Management Berhad

450
         Total Funds: 3
         Total Value: US$ 406 Million
                                                          Total Funds: 4
                                                          Total Value: US$ 417 Million
                                                                                                                                               Total Funds: 10
                                                                                                                                               Total Value: US$ 377 Million
                                                                                                                                                                                                                                                                                                                             launched:

400                                                                                                        CIMB Wealth
                                                                                                                                                                                                    Saudi Hollandi Bank                                                                                                             1                5            10
                                                                                                           Advisors Berhad
                                                    Boubyan Bank                                           Total Funds: 7
                                                    Total Funds: 2                                         Total Value: US$ 387 Million
350                                                 Total Value: US$ 405 Million
                                                                                                      Islamic Development Bank
                            Millennium Private Equity                                                 Total Funds: 1
                                                                                                      Total Value: US$ 325 Million
300                                                                                                                                                                                                                                                                                                                    Allianz Global Investors Luxembourg S.A.
                                                                         The Saudi Investment Bank                                                                                                                                                     Tricon Trade Management Limited                                 Total Funds: 6
                                                                                                                                                                                            Jadwa Investment                                                                                                           Total Value: US$ 276 Million
                                                                                                                                                                                                                                                       Total Funds: 1
250                 Shuaa Partners                       Siraj Capital
                                                                                                                                          ING Funds Berhad
                                                                                                                                                                                                                                                       Total Value: US$ 200 Million



                                                                                                                                                                 Abu Dhabi Islamic Bank (ADIB)                                                                                                                        HSBC Amanah
                                                                                                                         Dubai Islamic Bank PJSC
200        ABC Islamic Bank (E.C.)                                        Navis Capital Partners Limited                                                                                                                                                                                                              Total Funds: 6
                                                                                                                                                                                                                                                                                                                      Total Value: US$ 109 Million
                                                                                                               Wafra International Investment Company                                                Al Meezan Investment
                                                                                                                                                             Gulf Finance House
                                                                                                                                                                                                     Management Limited
                   MAAKL Mutual Bhd                                                                                                       CMH Fund                                                                                                                                                                                          UBS Islamic Fund Management
150                                                              Pacific Mutual Fund Bhd
                                                                                                                                          Management Group
                                                                                                                                                                                  Injazat Capital
                                                                                                                                                                                                                                       Avigo Capital                      BNP Paribas                                                       Company SA
                                                                                      Unicorn Investment Bank BSC                                                                                                                                                                          First International                              Total Funds: 1
                                        MIMB Investment                                                                                                                                                                                Partners                           Asset Management
                                                                                                                                                     Hwang-DBS Investment                                                                                                                  Property Investments Ltd                         Total Value: US$ 78 Million
                                        Bank Berhad                           Bank Aljazira        Kuwait Financial Centre                           Management Berhad
100                                                                                                                        First Investment                                                                                                     Alliance Investment
                                                                                                Venture Capital                                                                    Kuwait Finance &
                                                                                                                           Company K.S.C.                      International       Investment Company                                           Management
                                                                                                Bank                                                                                                                                                                                                    Futuregrowth Specialist
                                                                                                                                                               Investment Bank                                              AttijariWafa Bank                  Citi Islamic Portfolios SA               Asset Management
 50                                                                                                                       Solidarity                                                                                                                                                                                                 HC Securities & Investment

                                                                                                                                                                                                                                                                                                                                                              UBL Fund
                                                                                                                                                                                                                                                                                                                                                              Managers Ltd
  0

 Notes: Size of circle denotes number of funds (equity, balanced, fixed income, cash, commodity, real estate and others) issued as of Q1 2009.
 X-axis splits between players indigenous to key Islamic markets (i.e. the GCC, Pakistan, Malaysia and Indonesia) and foreign institutions.
 Y-axis denotes total value of active managed funds (where data was available). A selected number of institutions have been box labeled with additional information.
 .
 Source: Zawya, Eurekahedge, Annual reports

                                                                                                                                                                                                                                                                                                                                                                             53
     Adaptation will require a realignment of business models



                                                       Investment Management - Key Business Model Considerations




                                                                                              o n
                                                                                          uti
             Increase product base to                                                                                                     Focus on value added




                                                                                                                        St
             retain market share?




                                                                                       rib
                                                                                                                                          services and generate alpha?




                                                                                                                          rat
             Keep distribution in-house?


                                                                                    ist
                                                                                                                                          Revise fee structure to




                                                                                                                           eg
                                                                             dD
             Or move towards a wider                                                                                                      encourage investor




                                                                                                                             ya
             distribution strategy?                                                             Islamic                                   participation?
                                                                           an




                                                                                                                               nd
                                                                                             Investment
                                                                                                 Takaful
                                                                   ts




                                                                                                                                  Fe
                                                                                                  Fund
                                                                                                Industry
                                                                 uc




                                                                                                                                     es
                                                               od




                                                                                               Industry
                                                             Pr




                                                                                  Support Functions
                                                                           Consider cost reduction by moving
                                                                           back and middle office functions to
                                                                           shared service centers or off-shore?


     Source: Ernst & Young analysis

54         MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Firms will need to select a product and distribution platform that is aligned with its
strategy…


                                            Investment Management - Products and Distribution


        Proprietary                   Partnering                      Hybrid                 White Labeling             Open Architecture

Key Features                     Key Features                 Key Features                 Key Features                Key Features
   Structuring,                     A partnership                In-house production          Asset manager               Outsource strategy
   marketing,                       strategy whereby the         capability that is           provides third party        where the asset
   investment and                   asset manager and a          paired with the ability      structured and              manager becomes
   management of funds              strategic partner            to outsource and             managed funds               purely a distributor of
   are all conducted in-            structure, invest,           distribute best-of-          under its own brand         products that are
   house                            manage, brand and            breed products on            name                        structured and
   Capital intensive,               distribute the fund in       demand                       Less capital and            managed by third
   requires established             collaboration                                             human resource              party managers
   infrastructure and is            Suitable for players                                      intensive                   Requires minimal
   human resource                   with either structuring                                   Requires access to          capital, human
   intensive                        or fund management                                        established family of       resources and
                                    expertise                                                 funds                       infrastructure
                                                                                                                          Does not require
                                                                                                                          branding

                                                              Core Competencies
    Product Development                                                                                                       Distribution

                                                                 Typical Player
   Niche                                                                                                              Fund Supermarkets



Source: Ernst & Young analysis

                                                                                                                                                    55
     … and position themselves as alpha-seekers or asset gatherers to set their fee
     structure


                                                              Investment Management - Returns Strategy and Fees

                                               Value
                                                                       Alpha
          Active management                                           Seekers                                                                                       Passive management
          strategy which seeks to                                                                                                                                   strategy which seeks
          create value and                                                                                                                                          to track indices and
          achieve alpha                                                                         No-Man’s Land                                                       achieve beta
          In order to maintain                                                                                                                                      In order to achieve
          performance, AuM and                                                                                                                                      profitability, large AuM
          scale are kept relatively                                                                                                                                 and scale are sought
          small                                                                                                                                                     Fees are lower and
                                                                                                                              Asset
          Fees are higher and                                                                                                                                       weighted towards
                                                                                                                             Gatherers
          weighted towards                                                                                                                                          management
          performance
                                                                                                                                        Scale

          The average                                                                                                                                               The average
          management fee for an                                    Asset managers must focus their strategy and                                                     management fee for a
          active Islamic equity                                    subsequently tailor their value, scale and price                                                 passive Islamic equity
          fund is 1.4%                                             objectives                                                                                       fund is 0.65%
                                                                   Those that do not will be unable to distinguish
                                                                   themselves in a volatile market



     Source: Ernst & Young analysis, Eurekahedge                                                                        * Note: average management fees are for the 10 largest Islamic equity funds globally.

56         MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Whilst considering a lean and efficient corporate structure through the outsourcing
of non-core business activities


                                                      Investment Management - Support Functions




                      Front Office Activities                  Middle Office Activities                        Back Office Activities

                               Trading                                    Post Trade                              MIS Reporting
                               Client Relationship                        Settlement                              Financial Reporting
                               Product Structuring                        Price Verifications                     Reconciliations
                               Sales                                      Risk Management                         Client Reporting
                                                                                                                  Financial Control



                                                               Non-core middle and back office functions can
                                                               be outsourced to achieve cost savings and
                                                               efficiency gains


                                                                             Shared Service Centre (SSC)
                                                                Phase 2




                                                                                                                 Phase 3
                     Phase 1




                                 Shared Service Centre (SSC)                                                                 Offshore to low cost
                                                                            outsource non-core activities to
                                   Move non-core activities                                                                 jurisdiction to achieve
                                                                               near offshore or onshore
                                   to SSC in home country                                                                  substantial cost savings
                                                                                        location


Source: Ernst & Young analysis

                                                                                                                                                      57
     6. Key Business Risks




58    MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Key business risks for 2009 reflect an industry in flux and a market that remains
volatile




                  The business risks landscape for Islamic asset
                  management has changed substantially since 2008
                  The economic downturn, a reduction in investor risk
                             1. Macro              2. Asset
                            Economic              Classes &
                  appetite and unclear valuations will be the most
                            Conditions
                  pressing business risks in 2009 Products

                                     Islamic Asset
                         Key         Management
                                                      Key Investor
                       Business
                                                       Segments
                        Risks

                                      Competition
                                      & Business
                                        Models




                                                                                    59
     The 2009 Islamic investment fund industry business risks landscape has changed
     substantially


                                                                       How the Business Risks match up - 2009 and 2008 results

                                                                     Prolonged
                                                                      Prolonged
                                Global economic
                                Global economic                                                                                     Risk management
                                                                                                                                    Risk management          Reputation of
                                                                                                                                                             Reputation of         Business model
                                                                                                                                                                                   Business model
       Category
       Risk and




                                                                  reduction in risk                    Valuations
       Category
       Risk and




                                   downturn                        reduction in risk                   Valuations                      enforcement             industry             redundancy
                                    downturn                          appetite                                                         enforcement              industry             redundancy
                                                                       appetite

                                  Financial Risk
                                  Financial Risk                   Strategic Risk
                                                                   Strategic Risk                    Financial Risk
                                                                                                     Financial Risk                  Strategic Risk
                                                                                                                                     Strategic Risk          Strategic Risk
                                                                                                                                                             Strategic Risk        Operational Risk
                                                                                                                                                                                   Operational Risk


      2009
      2009                                1st
                                          1st                              2nd
                                                                           2nd                               3rd
                                                                                                             3rd                           4th
                                                                                                                                           4th                     5th
                                                                                                                                                                   5th                    6th
                                                                                                                                                                                          6th

      2008
      2008                                6th
                                          6th                             N/A
                                                                          N/A                              N/A
                                                                                                           N/A                            N/A
                                                                                                                                          N/A                      4th
                                                                                                                                                                   4th                   N/A
                                                                                                                                                                                         N/A

                                 Market risk and
                                  Market risk and                 Flight to safe
                                                                   Flight to safe                  Difficulties in
                                                                                                   Difficulties in                  Risk management
                                                                                                                                     Risk management        Poor performance
                                                                                                                                                             Poor performance      Extreme market
                                                                                                                                                                                    Extreme market
                                 resulting negative
                                  resulting negative              assets and
                                                                   assets and                      valuations of
                                                                                                   valuations of                    practice
                                                                                                                                     practice               has led to a
                                                                                                                                                             has led to a          conditions
                                                                                                                                                                                    conditions
        Contributing Factors
        Contributing Factors




                                 effect on
                                  effect on                       changes in
                                                                   changes in                      complex ‘hard to
                                                                                                   complex ‘hard to                 redundancy and
                                                                                                                                     redundancy and         decline in trust in
                                                                                                                                                             decline in trust in   resulting in
                                                                                                                                                                                    resulting in
                                 investment
                                  investment                      traditional asset
                                                                   traditional asset               price’ securities
                                                                                                   price’ securities                re-evaluation
                                                                                                                                     re-evaluation          financial services
                                                                                                                                                             financial services    operating model
                                                                                                                                                                                    operating model
                                 portfolios
                                  portfolios                      allocations
                                                                   allocations                     Markdown of
                                                                                                   Markdown of                      Risk models giving
                                                                                                                                     Risk models giving     Defaults and
                                                                                                                                                             Defaults and          redundancies
                                                                                                                                                                                    redundancies
                                 Increased
                                  Increased                       Redundant
                                                                   Redundant                       assets due to
                                                                                                   assets due to                    a false sense of
                                                                                                                                     a false sense of       ratings
                                                                                                                                                             ratings               Liquidity problems
                                                                                                                                                                                    Liquidity problems
                                 redemptions and
                                  redemptions and                 product portfolios
                                                                   product portfolios              global downturn
                                                                                                   global downturn                  security and failing
                                                                                                                                     security and failing   downgrades are
                                                                                                                                                             downgrades are        leading to
                                                                                                                                                                                    leading to
                                 capital outflows
                                  capital outflows                and investment
                                                                   and investment                                                   to capture extreme
                                                                                                                                     to capture extreme     further impacting
                                                                                                                                                             further impacting     business model
                                                                                                                                                                                    business model
                                 Lower take up of
                                  Lower take up of                strategies
                                                                   strategies                                                       events
                                                                                                                                     events                 sentiment
                                                                                                                                                             sentiment             failures
                                                                                                                                                                                    failures
                                 new launches
                                  new launches                                                                                                                                     Shift towards
                                                                                                                                                                                    Shift towards
                                                                                                                                                                                   performance-
                                                                                                                                                                                    performance-
                                                                                                                                                                                   related fees
                                                                                                                                                                                    related fees




     Source: Corporate interviews, Ernst & Young analysis

60                     MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
The impact of the economic downturn coupled with the reduction in risk appetite will
be the most pressing business risks faced by the Islamic fund industry over the next
12 months

 Key Business Risks                                                                                                                                         Key Business Risks
       2008*                                                            Islamic Investment Funds                                                                  2009
                                                                                                                                                                      Global economic
 1      Human resources                                                                                                                                     1
                                                                                                                                                                      downturn

        Limited                                          Financial                                                    Compliance                                      Prolonged
 2      diversification                                                                                                                                               reduction in
                                                                                                                                                            2
        opportunities*                                                                                                                                                investors' risk
                                                                                                                                                                      appetite
 3      Distribution
                                                                                                                                                            3         Valuations

 4
        Reputation of                                      Valuations
        industry*                                                                                                                                                     Risk
                                                                                                                                                            4         management
                                                                                                                                                                      enforcement
 5      Competition                                    Economic
                                                       Downturn                                                                                             5
                                                                                                                                                                      Reputation of
                                                                                                                                                                      industry
        Global economic
 6
        downturn*
                                                  Risk Appetite                                                                                                       Business model
                                                                                                                                                            6
                                                                                                                                                                      redundancy


     Key to Symbols                               Reputation                                                                  Business Model
          Up from                                                                                                              Redundancy
          2008
                                                         Risk Management
          Down from
          2008

          New entry
                                                         Strategic                                                    Operational



Source: Corporate Interviews, Ernst & Young analysis                       * Note: To ease comparability, the names of the 2008 risks have been amended to reflect responses from this year.

                                                                                                                                                                                               61
     The global economic downturn has been felt across all financial institutions. The
     Islamic investment management industry has not been immune


                                                                            Commentary and Contributing Factors
     The global economic downturn is seriously impacting the Islamic investment management industry
                                                                                                                        “The downturn has created a
          The crisis has battered the entire Islamic asset management spectrum, both those perceived to be the           vicious circle. Investors
          riskiest and the safest investment classes.                                                                    wish to redeem units.
                                                                                                                         Funds have to sell to fund
     Fund closures are expected to be significant                                                                        the redemption, driving
                                                                                                                         prices down further. ”
          Traditional asset classes such as real estate and equities have suffered heavily in the global crisis and      Bahrain executive
          some interviewees have predicted the closure of as many as 35-40 percent of funds in the sector.


     Redemption requests are at a record level                                                                          “We will see a number of
                                                                                                                         funds consolidating or
          Managers have commented that they have witnessed a surge of redemption requests as a result of                 closing as their AuMs fall
          revisions to the returns promised to investors.                                                                to inefficient levels.”
                                                                                                                         Saudi executive
     Investment managers have to adapt to survive
          Depressed market conditions are encouraging investment managers to implement cost controlling                 “We will not be launching
          measures such as limiting compensation and looking at potential outsourcing strategies.                        any new funds this year nor
                                                                                                                         probably in the first quarter
                                                                                                                         of 2010.”
                                                                                                                         Bahrain executive


                                                                                            Key Considerations
     Improve the core business function
          To meet the challenges of a depressed market and declining demand in traditional asset classes, investment managers should seek to review
          their operating model, streamline costs and focus on core competencies.


     Source: Corporate interviews, Ernst & Young analysis

62         MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
The prolonged reduction in risk appetite has resulted in a marked shift away from
traditional asset classes


                                                       Commentary and Contributing Factors
Investors are changing their investment strategies
                                                                                                                  “Investors want to invest in
     Interviewees have noted a change in strategy leading to changes in traditional asset allocations.             something where they will
                                                                                                                   not lose money.”
                                                                                                                   Saudi executive
Capital protection is the primary aim for investors regardless of return
     Interviewees have suggested that, in the current market climate, investors are investing in low risk
     strategies even though these traditionally offer the lowest returns.
                                                                                                                  “Redemption requests are
                                                                                                                   increasing though most of
Yielding investments providing an income stream are preferred to bullet payments
                                                                                                                   our funds are closed and
     Generally, interviewees commented that investors have moved to yielding investments which provide             they cannot redeem.”
     investors with an income stream rather than relying on a lump sum upon exit.                                  Bahrain executive


Investment managers are diversifying their product range to target new investors                                  “There is liquidity in the
                                                                                                                   market but investors are
     Investment managers are having to diversify their product range to meet the changing needs of their           taking a wait and see
     investors and to target new investors for market share retention.                                             approach.”
                                                                                                                   Bahrain executive



                                                                Key Considerations
Diversify income stream by developing new expertise
     Faced with declining demand in traditional asset classes, investment managers need to enhance their product portfolio and seek to target new
     investors.


Source: Corporate interviews, Ernst & Young analysis

                                                                                                                                                    63
     Declining values of portfolios are causing reported net asset values (and hence
     performance measurements) to decline


                                                                             Commentary and Contributing Factors
     Declining and difficult to price valuations are causing fluctuations in prices and net asset value
                                                                                                                         “Valuations for PE assets are
          Liquidity is still an issue, leading to difficulties in valuing portfolio holdings.                             proving difficult to achieve
                                                                                                                          in the current market,
     Valuations (where measurable) are not being achieved                                                                 affecting stated IRRs for
                                                                                                                          investors.”
          Where valuations can be calculated, interviewees have agreed that these are difficult to achieve.
                                                                                                                          Bahrain executive

     Investment managers are looking for new investment strategies                                                       “Redemption requests are
          Distressed funds are being launched by investment managers wishing to take advantage of the current             placing stress on
                                                                                                                          portfolios. As we sell at
          market conditions.
                                                                                                                          distressed prices, we are
                                                                                                                          not achieving the
     Declining values have left liquid/cash rich managers with a tremendous investing opportunity                         valuations we are ascribing
          A number of interviewees have confirmed that with asset prices (equity as well as fixed assets) at              to the assets.”
                                                                                                                          Dubai executive
          historical lows, this is an exceptional time to purchase cheap assets.
                                                                                                                         “With valuations falling,
                                                                                                                          now is actually a good time
                                                                                                                          to buy cheap assets.”
                                                                                                                          Saudi executive


                                                                                             Key Considerations
     Due diligence on potential investments should be thoroughly performed
          In order to ensure accurate valuations, investment managers will need to ensure that thorough due diligence is conducted.



     Source: Corporate interviews, Ernst & Young analysis

64          MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Risk management will play a pivotal role in 2009 and must be integrated across the
firm in order to assess risk at an enterprise level


                                                       Commentary and Contributing Factors
Risk management is being integrated across the firm
                                                                                                                  “It takes a lot longer to get
     Risk management is likely to be integrated across divisions and portfolios to create a comprehensive           deals done now.”
     firm-level profile.                                                                                            Bahrain executive

Expansion of risk models from back-testing approach to stress testing                                             “We now have a risk
                                                                                                                   management member
     Internal risk models will be expanded from back-testing to comprehensive stress testing, with higher          sitting on the desk with the
     probabilities assigned to extreme events.                                                                     traders. This way, we can
                                                                                                                   assess the key metrics at
Systemic risks are to be viewed in light of the current collapse in the financial system                           the time of execution rather
                                                                                                                   than at a later date.”
     Firms’ exposures will be identified in the context of the global financial system, with risks to the firm     Bahrain executive
     identified on a systemic level.


Counterparty risk management is prominent following high profile collapses                                        “With markets as shaky as
                                                                                                                   they are, investors
     Interviewees have noted a number of high profile international casualties in the Islamic fund
                                                                                                                   committed to deals are
     environment.
                                                                                                                   trying to back out, leading
                                                                                                                   to litigation.”
                                                                                                                   Bahrain executive


                                                                 Key Considerations
The trend in risk management is for better risk capabilities
     Managers that thrive in this market are those who demonstrate a holistic approach to managing and mitigating risk.



Source: Corporate interviews, Ernst & Young analysis

                                                                                                                                                  65
     The reputation of the funds industry has taken taking a beating recently, causing
     investors to withdraw capital


                                                                            Commentary and Contributing Factors
     The revision of expected returns has created an air of mistrust
          Shocks to investors have led to a lack of trust as products that have been marketed as “safe” have
                                                                                                                         “There is an overall climate
          proved to be riskier than expected.
                                                                                                                          of fear in the market.”
                                                                                                                          Saudi executive
     Potential investors are looking at the bottom line before deciding to invest
                                                                                                                         “There is a move away from
          With global markets tumbling and overall fund performance waning, investors are subjecting asset                reliance on the name and
          managers to closer scrutiny.                                                                                    history of a bank. Instead,
                                                                                                                          there is a move towards
     Frequency of valuations has been increased in order to satisfy the need for up-to-date information                   looking at the financial
                                                                                                                          results.”
          Weekly performance updates are now provided to clients to ensure they have constant access to                   Dubai executive
          reliable and relevant data.
                                                                                                                         “Investors have a lack of
     Investment managers are having to defend themselves                                                                  trust in the market. Even
                                                                                                                          though they traditionally
          Other interviewees are informing their investors of limits and levels of exposure to toxic asset classes.       placed their trust in
                                                                                                                          managers, this is no longer
                                                                                                                          true.”
                                                                                                                          Dubai executive


                                                                                            Key Considerations

     With the industry in the spotlight, investment managers need to be proactive

          Investment managers need to be proactively engaged in actively communicating with their clients to address any concerns before they arise.



     Source: Corporate interviews

66          MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Global financial turbulence has left many investment managers with redundant
business models


                                                    Commentary and Contributing Factors
Previously robust business models have failed to cope with extreme market events
                                                                                                                      “We are proactively looking
     Interviewees have suggested that, across the Islamic investment management spectrum, the business                 for ways to attract new
     models used have nearly all proved to be redundant in the current market conditions.                              investors. Changing the
                                                                                                                       way we charge our fees is
Fee structures are being revised to encourage investors back to the market                                             the obvious starting point.”
                                                                                                                       Bahrain executive
     One of the key features for revision will be fee structures as investors seek to scrutinize the
     management fees charged by investment managers and suggest investment managers rely on                           “This is a time to reassess,
     performance based fees instead.                                                                                   reexamine and
                                                                                                                       restructure.”
Exit plans are being agreed prior to investment to ensure liquidity                                                    Saudi executive

     Interviewees have commented that strategic investors are being sought to partner the investment                  “It is becoming
     manager at the outset of the fund launch.                                                                         uneconomical to operate as
                                                                                                                       a one-stop shop. Managers
                                                                                                                       are increasingly turning
New strategic ideas are being assessed                                                                                 towards white labeling their
     Islamic investment managers are seeking to work closely with conventional investment managers to                  products and focusing on
     develop an approach treating Islamic tranches as an ‘asset class’.                                                what they do best.”
                                                                                                                       Dubai executive



                                                                Key Considerations
Short-term focus should not overshadow long-term opportunities
     It is important that any restructuring decisions are made with the long term strategic objectives in mind and not simply as a result of short-term
     results.


Source: Corporate interviews

                                                                                                                                                          67
     7. Conclusions




68    MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Islamic asset management has been impacted by the global recession - in order to
survive the current downturn, participants will need to adapt


 The global recession has
  The global recession has                                                                                        Asset classes,
                                                                                                                   Asset classes,
 led to market corrections
  led to market corrections                                                                                       particularly equities and
                                                                                                                   particularly equities and
 and global asset
  and global asset                                                                                                real estate, have been
                                                                                                                   real estate, have been
 management has shrunk
  management has shrunk                                                                                           adversely affected by
                                                                                                                   adversely affected by
 for the first time since
  for the first time since                                                                                        the global recession
                                                                                                                   the global recession
 2002
  2002                                                                                                            Asset classes that offer
                                                                                                                   Asset classes that offer
 GCC and Asia have not
  GCC and Asia have not
                                          Macro                                       Asset                       liquidity and low
                                                                                                                   liquidity and low
 been insulated from the                                                                                          volatility have gained in
  been insulated from the
 downturn
                                         economic                                   Classes &                      volatility have gained in
                                                                                                                  popularity
  downturn                                                                                                         popularity
 Reduced oil revenues
  Reduced oil revenues                   Conditions                                 Products
 and a drop in global trade
  and a drop in global trade
 flows have decreased
  flows have decreased
 economic output in the
  economic output in the
 GCC and Asia
  GCC and Asia
 respectively
  respectively
                                                            Islamic Asset
                                 Key                        Management
                                                                                             Key Investor
                               Business
                                                                                              Segments
                                Risks
 The business risks
  The business risks                                                                                              Investors have seen
                                                                                                                   Investors have seen
 landscape for Islamic
  landscape for Islamic                                                                                           their investable wealth
                                                                                                                   their investable wealth
 asset management has
  asset management has                                                                                            decline as a result of
                                                                                                                   decline as a result of
 changed substantially
  changed substantially                                      Competition                                          the global downturn
                                                                                                                   the global downturn
 since 2008
  since 2008
 The economic downturn,
                                                             & Business                                           Asset allocation has
                                                                                                                   Asset allocation has
                                                                                                                  changed to reflect new
  The economic downturn,                                                                                           changed to reflect new
 a reduction in investors’
  a reduction in investors’                                    Models                                             market realities --there
                                                                                                                   market realities there
 risk appetite and unclear
  risk appetite and unclear                                                                                       has been a flight to
                                                                                                                   has been a flight to
 valuations will be the
  valuations will be the                                                                                          safety
                                                                                                                   safety
 most pressing business
  most pressing business
 risks in 2009
  risks in 2009

                               Average fund sizes remain small --increased redemptions have resulted in fund
                                Average fund sizes remain small increased redemptions have resulted in fund
                               liquidations
                                liquidations
                               The competitive landscape for global Islamic asset management is fragmented -- a
                                The competitive landscape for global Islamic asset management is fragmented a
                               shakeout appears likely
                                shakeout appears likely
                               Fund managers need to decide whether to focus on product development or
                                Fund managers need to decide whether to focus on product development or
                               distribution; returns or scale; and in-house or outsourced
                                distribution; returns or scale; and in-house or outsourced


                                                                                                                                               69
     Appendix 1 – Domicile Considerations




70    MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Key considerations, including repatriation and taxation, must be considered in order
to determine an appropriate domicile for an Islamic investment fund


                                   Key Considerations for Fund Domicile and Relative Importance


                                                Is the repatriation of funds allowed?
                                                Does the jurisdiction have a developed               Are there withholding
                                                banking system?                                      taxes?
     What markets will the fund
     invest in?                                 Are fund custodians present?                         Does the jurisdiction
                                                                                                     have double tax
     Do certain jurisdictions
                                                                                                     treaties?
     provide favorable points of
     access?                                                                                         Are there other tax
                                                           Repatriation of                           considerations (e.g.
                                                               Funds                                 Zakat)?
                                                             (Primary)
                                     Geographical
                                                                                         Taxation
                                       Mandate
                                                                                         (Primary)
                                     (Secondary)
                                                                Key
                                                           Considerations
                                          Target                                     Fund Manager
                                        Investors                                      Location
                                      (Secondary)                                      (Tertiary)
     Who will the fund be                                   Target Asset
     placed with?                                              Class                                 Where is the fund
     Are there regulatory                                   (Secondary)                              manager based?
     restrictions to consider
                                                                                                     Which regulator
     (e.g. difference between
                                                                                                     licensed the manager?
     accredited, institutional,
     public?)                                   Which instruments will the fund invest in?
                                                Are there indigenous service providers
                                                experienced in the asset class?
Source: Ernst & Young analysis

                                                                                                                             71
     Meanwhile, the majority of Islamic funds are domiciled in 6 key jurisdictions



                                                          Key Islamic Fund Domiciles by Number of Funds (Q1 2009)

                                                                                                                                                                  South Africa
                                                                                                                                             Singapore 3%
                                                                                                                                                                       2%

                                               Malaysia, 23%                                                                      Qatar 1%
                                                                                                                                                                            Switzerland 2%


                                                                                                                                                                                 Thailand 1%
                                                                                                                         Pakistan 2%
                                                                                                                                                                                  Turkey >1%
                          Saudi Arabia,                                                                              Netherlands >1%                                               United Arab Emirates
                             19%                                      Others, 25%                                        Morocco 1%                                                        1%

                                                                                                                  Liechtenstein >1%                                                United Kingdom
                                                                                                                        Labuan >1%                                                       1%
                                                                                                                        Hong Kong >1%
                                                                                                                                                                                 United States 2%
                           Kuwait, 9%                                                                                      Germany 2%
                                                                                                                                 France 1%                                  Australia >1%

                                                                                                                                        Egypt 2%                        British Virgin Islands 1%
                                                                                                                                                               Canada Brunei 1%
                                                                                                                                             Channel Islands
                                                                                  Indonesia, 3%
                                                                                                                                                  2%            1%
             Luxembourg, 7%                                                  Ireland, 4%
                                       Bahrain, 6%            Cayman Islands, 4%



            Six jurisdictions are home to almost two-thirds of all global Islamic funds
            Two main types of domicile exist - domestic and offshore destinations
            Funds based in domestic domiciles are established to gain access to local investors and local assets
            Funds based in offshore target international assets and are established to take advantage of low taxes, fund administration, regulatory
            regimes and investor perception


     Source: Zawya, Eurekahedge, Ernst & Young analysis

72          MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Favoured jurisdictions are characterized by low or no taxes, existence of double tax
agreements and widespread international acceptance


                                                                                                  Key Islamic Fund Domiciles
                                                                 Malaysia                     Saudi Arabia                          Kuwait                      Luxembourg                           Bahrain                   Cayman Islands
  Withholding Tax
  Dividends                                                          0%                               5%                              15%                            15% 2                              0%                               0%
  Interest                                                                 1                          5%                               0%                              0%                               0%                               0%
                                                                   15%
  Royalties                                                         10%                              15%                               0%                              0%                               0%                               0%
  Participation Exemption
  Dividends                                                        Yes 3                              No                               No                              Yes                              No                              Yes
  Capital Gains                                                    Yes 4                              No                               No                              Yes                              No                              Yes
  Controlled Foreign Company (CFC)
  Specific Rules                                                     No                               No                               No                               No                              No                               No
  Tax Treatment of Hybrid Instruments
  Status                                                            No 5                     Not Applicable                           No 6                            Yes 7                    Not Applicable                            No
  Double Tax Treaties (Number of countries)
  In existence                                                        63                               8                               41                               50                               12                               0
  Pending                                                             20                              12                                0                               22                                3                               0
  Relative Strength of Regulatory Regime
  Grade                                                            Good                           Average                          Average                            Good                            Good                             Good

1 - Any company not resident in Malaysia is exempted from Malaysian tax (including withholding tax) on interest income from Islamic securities (other than convertible loan stock) issued in Malaysian Ringgit (RM).
2 - Since January 1st, 2009, a 0% WHT rate applies if the dividend distribution is made to a company residing in any State which has signed a double tax treaty with Luxembourg and to Luxembourg permanent establishments of such entities
and provided the following requirements are met: (i) the receiving is subject to an effective tax rate of at least 10,5% and (ii) its tax basis is determined following similar rules to those provided by Luxembourg tax law, and (i) it either holds at
least 10% of the shares of the Luxembourg entity or (ii) the acquisition cost of the shares amounts to at least € 1,200,000.
3 - Malaysia adopts a territorial system of taxation such that foreign-sourced income, including dividends from non-resident companies, is not subject to Malaysian tax.
4 - There is no capital gains tax regime in Malaysia at this time and therefore capital gains are not subject to tax.
5 - No specific law for tax treatment of hybrids.
6 - Treatment not provided for in tax law. No practical experience.
7 - No specific law for tax treatment of hybrids.
Source: Relevant country regulations, Ernst & Young analysis                                          Note: This information is not exhaustive, should not be construed as tax advice and provides only a summary of key factors.

                                                                                                                                                                                                                                                            73
     Top 5 domiciles for each Islamic asset class/product offering



                                                                                     Key Islamic Fund Domiciles


         Rank               Equities                Money Market                Fixed Income                   Balanced            Real Estate      Commodities        Others


            1               Malaysia                   Malaysia                    Malaysia                    Malaysia          Cayman Islands      Malaysia          Kuwait
            2            Saudi Arabia                Saudi Arabia               Saudi Arabia                Saudi Arabia              Kuwait          Jersey       Cayman Islands
            3                Kuwait                      Kuwait                     Pakistan                   Indonesia         Channel Islands    Saudi Arabia    Saudi Arabia
            4            Luxembourg                Cayman Islands                  Indonesia                   Pakistan              Bahrain          Ireland         Malaysia
            5                Bahrain                    Pakistan              Channel Islands                    Kuwait           Saudi Arabia        Bahrain          UAE



                                                                             Domestic Domicile                             International Domicile




       Malaysia and Saudi Arabia, due to the sheer size of their economies and Islamic finance sectors, emerge as the top destinations for most fund
       categories
       Real estate and other funds (which include alternative funds) are more commonly based in international domicile locations due to ease of
       establishment, tax considerations and developed regulatory regimes




     Source: Eurekahedge, Ernst & Young analysis

74         MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
Appendix 2 - Team and References
     Ernst & Young’s Islamic Financial Services Group




           EMEIA*                                         Sameer Abdi                                    +973 1751 2801     sameer.abdi@bh.ey.com

           Bahrain                                        Salmaan Jaffery                                +973 1751 2802     salmaan.jaffery@bh.ey.com

           Saudi Arabia                                   Ahmed Taher                                    +966 1215 9438     ahmed.taher@sa.ey.com

           Qatar                                          Robert Abboud                                  +974 4573 444      robert.abboud@qa.ey.com

           Kuwait                                         Daryoush Pour                                  +965 2295 5055     daryoush.pour@kw.ey.com

           UAE                                            Najeeb Rana                                    +971 4312 9343     najeeb.rana@ae.ey.com

           United Kingdom                                 Richard H. Grainger                            +44 207 951 1091   rgrainger@uk.ey.com

           Luxembourg                                     Pierre Weimerskirch                            +352 42 124 8312   pierre.weimerskirch@lu.ey.com

           Malaysia                                       Abdul Rauf Rashid                              +603 7495 8000     abdul-rauf.rashid@my.ey.com

           Hong Kong                                      James A. Smith                                 +852 2846 9888     james.smith@hk.ey.com




     * Note: Europe, Middle East, India and Africa

76         MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
The report’s methodology and our interviews




Survey Methodology                                                       Business Risks Radar
   Our survey sought to identify key trends and business risks for the      The Ernst & Young risk radar is a simple device that allows us to
   global Islamic asset management industry through in-depth                present the top 6 business risks in the Islamic asset management
   interviews with executives and industry observers.                       industry.
   These discussions were used to gauge business sentiment and              The risks at the center of the radar are those that the individuals
   identify key areas for inquiry.                                          we interviewed thought would pose the greatest challenge to the
   Interviews were conducted in March and April of 2009. A total of         industry in 2009.
   24 interviews were conducted in five different countries by Ernst &
   Young staff.                                                          Business Risk Categories
   Interviews centered on four main topics of discussion, namely:           The radar is divided into four sections that correspond to the Ernst
            Business confidence                                             & Young Risk Universe™ model.
            Investor appetite                                               Compliance threats originate in politics, law, regulation or
            Competition                                                     corporate governance;
            Business risks                                                  Financial threats stem from volatility in markets and the real
                                                                            economy;
Business Risk Ratings                                                       Strategic threats are related to customers, competitors and
   Ernst & Young subject matter experts developed a list of Islamic         investors; and
   asset management business risks and contributing factors.                Operational threats impact the processes, systems, people and
   All interviewees were provided with this list of business risks and      overall value chain of a business.
   requested to rate each to reflect its severity to their respective
   business over the coming 12 months. Interviewees were also            Acknowledgement, Anonymity and Quotes
   asked to add any additional risks they felt were important.
                                                                            We would like to thank all those interviewees that agreed to
   The results of this rating process were tallied and a relative           contribute to our report.
   ranking assigned to each. This rank formed the basis for our
                                                                            All interviewees were assured of anonymity and minutes
   comparative study with 2008 results.
                                                                            documented during our discussions were approved by respective
                                                                            interviewees.
                                                                            Quotations have been used to support argument made in the
                                                                            report.

                                                                                                                                                   77
     References and the Project Team




     Sources                                                                                                       Ernst & Young’s Project Team
        Bank Negara Malaysia Annual Takaful Statistics (2007)
        Bloomberg                                                                                                  Bahrain Office
        Business Week                                                                                              Sameer Abdi                    Salmaan Jaffery
        Capgemini and Merrill Lynch World Wealth Report                                                            Zahir Rashid                   Mark Stanley
        CIA World Fact book                                                                                        Kamran Akhtar                  Saad Qureshi
        Company Annual Reports                                                                                     Samir Bhegani                  Fahim Shelot
        Datamonitor Global Wealth Model                                                                            Faisal Hasan                   Hala Naseeb
        Deutsche Bank - SWFs and Investment Policies
        Eurekahedge                                                                                                For questions or comments, please contact Mark Stanley on:
        Financial Times                                                                                            +973 1751 2811
        Global Business Monitor International                                                                      mark.stanley@bh.ey.com
        Global Insight
        IFIS
        Malaysian Central Bank
        Merrill Lynch
        Ministries of Justice and Islamic Affairs, Foundation and Awqaf
        MSCI
        National Mutual Fund Association
        OECD-Private Pensions Outlook 2008
        Preqin
        Qwest Investment Management
        Standard & Poors
        SWF Institute
        Zawya


78        MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Islamic Finance Industry Since 1993
MEGA is the leading business information firm focused on achieving business results for the Islamic banking & finance industry since 1993. Our exclusive focus on
Islamic finance has enabled us to create significant value for the leading players in the Islamic banking, finance and investment markets. The portfolio of MEGA brands
represents the landmark industry conferences and our clients are the leading players in the international financial markets.

Partnering with Governments and the Industry Thought Leaders

Our Strategic Associates are world leaders in their respective fields and include key government finance and regulatory agencies such as the Central Bank of Bahrain,
Dubai International Financial Centre, UK Trade & Investment, the Monetary Authority of Singapore, and the Economic Development Board of Bahrain. These and our
other strategic alliances with international thought leaders including Ernst & Young and global strategy advisory firm McKinsey & Company further strengthen MEGA’s
brand leadership position in the Islamic finance industry worldwide.

Investing in our Brands: Number 1 in Each of Our Markets

MEGA continues to grow its portfolio of Islamic finance brands to further extend our leadership position across the Banking, Takaful, Funds, Capital Markets, and
Project Finance segments. Each brand is developed over many years in order to further cement its number 1 position in its respective market.

In 1994 we founded the World Islamic Banking Conference (WIBC), which at the time was one of the first conferences in the world to focus on this nascent
industry. That first year we had 120 pioneering delegates and one sponsor. Today, more than a decade later and with more than 1,200 delegates from over 45 countries
attending the conference each year, WIBC is an iconic brand recognised as the largest and most significant gathering of banking and finance leaders in this rapidly
growing industry anywhere in the world.

A World Stage: Genuinely Global Dialogues

MEGA brands have a genuinely global reach across the Islamic finance industry. An initiative to further broaden this international representation ‘The World Comes to
WIBC’ was launched at WIBC 2007 and has grown to now feature a British Pavilion led by UKTI and comprising 18 British-based banks. 2008 saw us further extending
this programme to Asia, in partnership with the Monetary Authority of Singapore, which resulted in a high-profile Singapore delegation led by the MAS Governor.
A number of leading international Islamic banking groups also now convene their annual board meetings along the sidelines of WIBC.

Understanding Client Needs & Delivering Long-Term Value

MEGA’s leadership position has come as a result of our relentless focus on the constantly changing needs of our clients as the industry has grown and matured.
Whether it be the challenges of launching a new bank, a new investment fund, an innovative new retail financial product or raising corporate profile in a key target
market, we ensure that our offerings are closely aligned to the immediate business priorities of our clients. Then we make sure that we deliver on our promises and
that is why the market leaders come back and work with us year after year. Our genuine value creation is highlighted by our long-term relationship with Ernst & Young
who have worked with us continuously since the inception of the World Islamic Banking Conference 16 years ago - and who are also now our partners across the
portfolio of MEGA brands.



                                                                                                              Shaping the Future of the Islamic Finance Industry Since 1993
                                                                                                              P.O. Box 72045, Dubai, UAE | t. +9714 343 1200 | f+971 4 343 6003
                                                                                                              www.megaevents.net
                                                                                                              MEGA Brands. MEGA Clients. Market Leaders.
MEGA BRANDS. MEGA CLIENTS. MARKET LEADERS.
MEGA is the market leading business information firm focused on achieving business results for the global Islamic banking & finance
industry since 1993. The portfolio of MEGA brands represents the landmark industry conferences and our clients are the leading
players in the international financial markets.




                               Shaping the Future of the Islamic Finance Industry Since 1993
                               P.O. Box 72045, Dubai, UAE | t. +9714 343 1200 | f+971 4 343 6003
                               www.megaevents.net
                               MEGA Brands. MEGA Clients. Market Leaders.

				
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