Islamic investment bank Arcapita has raised $100m from its existing shareholders in order to fund a return to market one year after it filed for bankruptcy. Arcapita hopes to get back into Shari’ah compliant private equity and property investments in in the GCC the bank said in a statement. The bank will also consider the US, Asian and European investments at a later stage, it said. Arcapita reappeared after Chapter 11 in September 2013, securing a $350m loan from Goldman Sachs. The Bahrain-based Islamic investment bank had filed for bankruptcy in March of the previous year after negotiations with creditors over a $1.1bn syndicated loan proved fruitless. “We are pleased that the equity offering was oversubscribed and to have expanded our shareholder base to include a prominent group of sovereign wealth funds, institutional investors, high net worth individuals and family offices from across GCC region,” Abdulaziz Aljomaih, chairman of Arcapita, said in the statement. Atif Abdulmalik, Arcapita’s CEO said, “Arcapita was formed to originate high-quality Shari’ah-compliant alternative investment opportunities for investors. With the support of our shareholders and investor base, we have built a strong platform to source and manage Shari’ah compliant investments worldwide. Over the last 17 years, Arcapita’s investment professionals have completed more than 70 investments with a transaction value of approximately $30bn across the globe.”
AOIFI Bahrain conference comes to a close
The AAOIFI annual conference has drawn to a close in Manama, Bahrain. The second day of the conference covered discussions relating to implication of Basel III on Islamic finance, Sukuk and Islamic capital markets as avenues for long-term financing and updates on AAOIFI accounting standards. At the session on Sukuk and Islamic capital markets, the conference also discussed the areas of further harmonisation and standardisation on structuring and issuance of Sukuk. AAOIFI has issued, amongst others, Shari’ah standards on Sukuk and Islamic finance mechanisms that are used in as underlying structures for Sukuk. It has also issued accounting standards on those Islamic finance mechanisms and investments in Sukuk. In order to complement and supplement those existing standards, AAOIFI will be carrying out development of new standards relating to Sukuk that will give more comprehensive and extensive guidance in order to support continuing growth of Sukuk.
For many investors and savers looking for a Shari’ah compliant way to make their savings work harder, the Islamic Term Deposit is an investment that can be useful and easy to understand. The products tend to come with a fixed term offering set returns over the period of the investment.
In general an Islamic Term Deposit should involve no monthly or transactional fees and should be available in a range of investment terms that allow the saver to become eligible for profit on maturity. Many Islamic TDs also allow investors to add additional funds to the TD at maturity. Often these Shari’ah compliant savings accounts will pay the highest rate of profit of all savings accounts offered by a bank.
As with conventional TDs, however, investors and savers need to lock their money away for a fixed period of time, agreed at the outset and they will not be able to get access to their money during that period. In addition the minimum deposit required is generally a little higher than for other accounts.
Another generalisation is that the longer the money is locked away, the better the return, with the 12, 18 month and 24 month Fixed Term Deposit Accounts providing the highest expected profit rates. If customers need the flexibility if instant withdrawals, they should consider other instant access savings accounts.
Change in the air
The ramifications of the new Basel III banking regulations will soon be felt in the world of Islamic Term Deposits, however. Many national banking supervisory bodies have published consultation documents addressing the issue of ‘Term deposits that are only breakable on 31 days’ notice’. These tend to state that the Basel III liquidity standards have the goal of promoting a more resilient banking sector, including improving the sector’s ability to absorb shocks arising from financial and economic stress. Term deposits that are only breakable on 31 days’ notice would achieve recognition of the 31-day term under the Basel III liquidity standards.
The long-standing practice among authorised deposit-taking institutions s is to allow term deposits to be breakable at the depositor’s discretion, whether or not subject to some loss of interest. If this practice is maintained, ADIs to whom the LCR requirements apply will need to hold a larger liquidity buffer under the Basel III liquidity standards. This is likely to result in a reduction of term deposit rates offered by ADIs due to the need to recoup the associated costs of holding a larger liquidity buffer. To meet the Basel III liquidity standards, a depositor must have no legal right to withdraw deposits within the 30-day horizon of the LCR. Therefore, term deposits that require a minimum notice period of 31 days before being able to be withdrawn by the depositor will achieve recognition of their term for LCR purposes.
Recently many banks have been running advertisements in the mainstream press about their new terms and conditions for term deposits. The precise terms and conditions will vary between the various banks, but tend to state that from January 2015, customers will need to provide 31 days’ notice to access the funds in their term deposits before the maturity date. This applies to TDs invested for terms greater than 30 days and that are opened or reinvested from 31 October 2014.
Investors and savers holding term deposits are advised to check with their bank to establish where they stand on the 31 days’ notice ruling.
Islamic finance conference in Liechtenstein
Under the patronage of Prince Nikolaus von und zu Liechtenstein and Dr Urs Philipp Roth-Cuony, chairman of Liechtenstein Financial Market Authority, the first Islamic finance conference in Liechtenstein was held in October 2014. Liechtenstein is seeking to explore the country’s possibilities to establish itself as an Islamic financial centre and invited 10 experts to talk about Islamic finance. Fares Mourad, managing partner at Peak Values Ltd. participated as a keynote speaker at the conference and as a select member of the discussion panel concluding the conference. The conference and Mourad featured on TV which gave a good synopsis on Islamic finance.
In essence, benchmarks are a standard against which the performance of financial instruments like managed funds can be measured. More often than not, broad market and market-segment indices are used for benchmarking purposes. A benchmark is usually an index of securities from the same, or similar, class: stocks are usually compared against stocks, bonds against bonds and so on.
Why benchmarks can be a useful tool for investors
When an investors is looking at the performance of an investment, it helps to be able to compare it to something else to give a sense of how well or how badly the performance of the investment compares. Market indices can be useful for managed fund investors by offering market ‘standards’ to help them evaluate the risk and the return history of their own investments.
There are many indices that analysts and fund managers use to gauge performance. In the interest rate securities area these include the Bloomberg (formerly UBS) Bank Bill Index and the Bloomberg Composite Bond Index. International bond funds will naturally use a different set of benchmarks to domestic funds.
When an investor is deciding on which managed fund they might want to use, the product literature describing the fund will make reference to a benchmark with the intention of giving the investor a sense of how well the fund has performed over time. It is mandatory for the sponsors of managed funds to declare a benchmark index, which must be independent and based on the objectives of the fund.
If the fund delivers higher returns than the benchmark, then it is said to have outperformed the index or benchmark. If the fund delivers lower returns than the benchmark, then it is said to have underperformed the benchmark. If the fund is actively managed and delivers a returns equal to the benchmark, then it is also said to have underperformed.
Establishing whether a fund has outperformed its benchmark is important in selecting a managed fund and this can be determined by looking at the fund's historical returns over 1 year, 3 years, 5 years and sometimes 10 year returns, if the data is available. A fund that can consistently outperform its benchmark is likely to be more popular than one that cannot. Various publications carry regular data on a range of managed funds that allows investors to look at various funds and find out how they have performed over time.
Naturally, performance against an index or benchmark is not the only yardstick for deciding which fund to invest in and past performance is not a guarantee of future performance. Investors should also consider their own risk profile and a host of other factors when deciding where to invest.
Last Updated on Wednesday, 12 November 2014 05:30