Hedge funds with no leverage, options or futures might sound like a product stripped to the bare essentials of short and long equity strategies, but that has not deterred the $50 million seeding of the BlackRock Global Resources & Mining Fund by the Dubai Multi Commodities Centre.
At a press conference today fund arrangers Barclays Capital and Shariah Capital refused to give a target for how much the fund intends to raise when it goes public in December. However, the DMCC has now seeded four Islamic hedge funds with a total of $200 million and hopes for billions of dollars in subscriptions.
Shariah Capital’s Eric Meyer, the driving force behind the world’s first Islamic hedge funds, says this is a big day for his industry which fills a market niche for Shariah compliant investment. His company has developed tools for screening stocks to ensure they comply with Islamic principles such as low gearing, and a technique that allows shorting in compliance with Shariah.
Scholarly advice
The group also has its own in-house Islamic scholar to monitor movements within the portfolios on a daily basis to ensure nothing ‘haram’ creeps into the asset base. At the same time, each of the funds is run by a best-of-breed fund manager with huge experience in stock picking.
For example, John C. Hathaway of Tocqueville Asset Management manages the gold fund. He points to the 40-year low in gold stock prices as a buying opportunity, and says that massive money supply inflation means dollar weakness would resume very shortly.
This is indeed a bizarre time to launch a new hedge fund. But as Mr. Meyer argues these are not traditional hedge funds because they use zero leverage. Only in the facility to go long and short are they hedge funds in the strict sense.
Commodities will boom
But the timing might actually prove auspicious with stock prices around the world at such lows, and conservative stock-picking by expert fund managers looks a good strategy, particularly when focused on commodities which may recover rather quickly as multi-trillion dollar stimulus packages inflate the world economy.
It has been notable that Islamic equity funds have performed well in the downturn because avoiding heavily borrowed companies is a plus in such times. The only quibble is that staying in lowly geared companies is not good for growth in an upturn. But then we have to get there first.
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