The Dubai Multi Commodities Centre (DMCC) yesterday said it will commit $250 million (Dh918m) to a Shariah-compliant fund investing in a range of commodity hedge funds, a move that will open the way for other Islamic investors.
DMCC will invest $50m in five hedge funds approved under Shariah.
"We have worked closely with our international partners to engage world-class fund managers with excellent track records in order to offer investors premium Shariah-compliant investment solutions," said Ahmed bin Sulayem, executive chairman of DMCC.
The funds will be administered by Cayman Island-based Al Safi, an independent trust, and access to the commodity hedge funds for Islamic investors will be available through a fund offered by Dubai Shariah Asset Management.
"Al Safi has been created in response to market demand for Shariah-compliant alternative investments and the considerable impediments fund managers have faced meeting that demand," DMCC said in a statement. "For the Islamic investor, Al Safi offers credibility and integrity."
The five hedge fund managers are United States-based Tocqueville Asset Management, Lucas Capital Management, Zweig-DiMenna International Managers, Ospraie Management and BlackRock. Barclays Capital, the investment banking division of United Kingdom-based Barclays Bank, will service the hedge funds and London-listed Shariah Capital will advise on Shariah compliance.
Dubai Shariah Asset Management is a partnership between the DMCC Authority and Shariah Capital.
"The Middle East is a fast-growing market, with estimated investment assets of more than $3 trillion," said Dan Rice, a managing director at BlackRock.
For many Islamic investors the world of hedge funds has been closed because many of them short - borrow and sell a security on expectation of buying it back at a lower price in the future. Shariah law prohibits investors from selling something they do not own, but Shariah Capital, with advice from Shariah scholars, has devised a method that allows a short trade to be replicated without the need to borrow a security.
Hedge fund managers at Al Safi who want to short a security place the order with Barclays Capital. "The difference is Barclays Capital facilitates the transaction as a purchase, not as a loan," said Eric Meyer, chief executive at Shariah Capital. "This is done without any administrative impact on the hedge fund manager, his portfolio or performance."