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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 Kuwait Awqaf Public services Foundation (KAPF); Awqaf and Minors AMAF UAE Religious and Financial services, real estate, foundation (AMAF); Philanthropic education and social services Estimated Change in Sharjah Awqaf General SAGS UAE Religious and Real estate, education and Market Size from 2007: Trust (SAGS); Philanthropic social services Qatar Endowment +10-20% Authority (QEA); QEA Qatar Religious, Philanthropic Real estate, health, education Ministry of Islamic Affairs, and Family and social services Endowments, Da’wah and Guidance (MIAEDG); MIADEG KSA Religious, Philanthropic Real estate, health, education Ministry of Religious and Family and social services Affairs (MARA); and 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 firstname.lastname@example.org Bahrain Salmaan Jaffery +973 1751 2802 email@example.com Saudi Arabia Ahmed Taher +966 1215 9438 firstname.lastname@example.org Qatar Robert Abboud +974 4573 444 email@example.com Kuwait Daryoush Pour +965 2295 5055 firstname.lastname@example.org UAE Najeeb Rana +971 4312 9343 email@example.com United Kingdom Richard H. Grainger +44 207 951 1091 firstname.lastname@example.org Luxembourg Pierre Weimerskirch +352 42 124 8312 email@example.com Malaysia Abdul Rauf Rashid +603 7495 8000 firstname.lastname@example.org Hong Kong James A. Smith +852 2846 9888 email@example.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 firstname.lastname@example.org 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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