Islamic hedge funds find a way of going short

Filed under: Islamic Finance, UAE Stocks, US Dollar — peterjcooper @ 2:34 pm

Barclays Capital, and the Dubai Multi Commodities Centre Authority, an agency of the Dubai government, today announced the first Shariah compliant hedge funds on the Al Safi Trust platform. This breaks new ground for Islamic investors and opens up an entirely new asset class of alternative investments.

DMCC has committed to seed five commodity hedge fund managers on Al Safi with $50 million each, a total of $250 million, for a Shariah compliant fund of funds product to be offered under the Dubai Shariah Asset Management brand.

The commodity strategies and hedge fund managers approved by DMCC are: Tocqueville Asset Management Gold; Lucas Capital Management LLC Energy/Oil & Gas; Zweig-DiMenna Intl. Managers Natural Resources; Ospraie Management Agriculture; BlackRock, Inc;

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Global Resources and Mining.

Al Safi is a comprehensive Shariah compliant platform comprised initially of single strategy alternative investment managers with London-listed Shariah Capital as the Shariah advisor and Barclays Capital as prime broker and structured product distributor.

Conventional short selling is unacceptable in Islamic Finance because Shariah Law prohibits an investor from selling something that he does not own. Under Shariah, an investor cannot borrow shares from a brokerage house or bank and sell them in the market for an eventual gain.

Under the guidance and approval of Al Safi’s Shariah Supervisory Board, different mechanics for the transaction have been developed. This process establishes ownership before the sale of the asset to the market. In order to accomplish this, a classical Shariah commercial model, known as the Arboon sale, has been used. Then while the mechanics of the sale may be different, the economics of the transaction are the same as a conventional short sale.

For the hedge fund manager, Al Safi is a turnkey solution that provides portfolio screening and related Shariah solutions for hedge funds which enable managers to operate within Shariah while remaining consistent with their existing investment strategies.

Through the prime brokerage resources of Barclays Capital and with the oversight of Shariah Capital, along with the guidance of the internationally-recognised Shariah scholars comprising its Shariah Supervisory Board, Al Safi tracks each trade and each position of every manager through separately managed accounts in order to ensure Shariah compliance.

In addition to the above commodity fund managers, other long/short equity hedge fund managers available on the Al Safi platform will be announced shortly. The Al Safi platform expects to include a range of alternative investment strategies as well as specialised investment funds.