kfh malaysia) - islamic fund mgt

ISLAMIC FUND MANAGEMENT ISLAMIC FUND MANAGEMENT

PRESENTATION BYPRESENTATION BY

MR.K.SALMAN YOUNISMR.K.SALMAN YOUNISMANAGING DIRECTORMANAGING DIRECTOR

KUWAIT FINANCE HOUSE (MALAYSIA) BERHADKUWAIT FINANCE HOUSE (MALAYSIA) BERHAD

BRUNEI ISLAMIC FINANCIAL SERVICES FORUMRoyal Berkshire, Jerudong Park Polo Club - Brunei Darussalam

15 September 2006

TOPICS

Introduction to Kuwait Finance House

Background of Kuwait Finance House (Malaysia) Berhad

KFH Experience In Fund Management

Overview of Islamic Funds

Types of Islamic Funds

Asset Classes

Socially Responsible Investing (SRI) & Shariah Compatible Investing (SCI)

Challenges & Way Forward

Incorporated and headquartered in the State of Kuwait – 1977

Ownership :- Kuwait Investment Authority 25.01%- Public Authority for Minor’s Affair 10.78%- Kuwait Awkaf Public Foundation 8.47%- General Public 55.74%

100.00%

KFH is one of the largest Islamic banks in the world, and is involved in corporate, investment, commercial and retail banking.

The Government of Kuwait owns 44.26% of the equity, and the general public holds the remaining shares

KFH AT A GLANCE

SNAPSHOT OF KFH GROUP

MALAYSIA

&

SOUTH EAST ASIA

KUWAIT

BAHRAINBANGLADESH

TURKEY

UAE

OMAN

As at 31 December 2005On Consolidation

•Market Capitalisation : US$ 8,917 million

•Net Profit : US$ 406 million

•Asset : US$ 16,031 million

•Equity:US$ 1,849 million

• Single “A” rated by S&P, Moody’s Fitch JBCA

TOPICS






Asset Classes



Granted Islamic Banking Licence by MOF Malaysia to commence operations with effect from 8 May 2005

Main Office : Level 17 & 18 Tower 2, MNI Twins, Jalan Pinang, Kuala Lumpur

First KFH Malaysia branch : Ground floor, Tower 2, MNI Twins, Jalan Pinang, Kuala Lumpur

Initial capital investment : RM380 million (US$ 100 million)

Current staff strength : 140

Commencement of operations : 8 August 2005

KUWAIT FINANCE HOUSE (MALAYSIA) BERHAD

May 2004

• Bank Negara Malaysia approved the application of KFH to establish the first foreign Islamic bank in Malaysia.

• Granted Islamic Banking License by Minister of Finance Malaysia to commence operations.

5 May 2005

Aug 2005

• First branch opened in Kuala Lumpur and started its operation.

Dec 2005

• KFH (Labuan) Berhad, a wholly owned subsidiary of KFHMB, was granted offshore banking license.

February 2006

• Granted Islamic Dealer’s License by Securities Commission.

17 February 2006

• Official Opening by the Honorable Prime Minister of Malaysia.

KUWAIT FINANCE HOUSE (MALAYSIA BERHAD) : MILESTONES

• Bank Negara announced the issuance of three new Islamic banking licenses to foreign Islamic banks.

Sept 2003

www.kfh.com.my

TOPICS






Asset Classes



KFH EXPERIENCE IN FUND MANAGEMENTFunds under management exceed US$ 2 billion (KFH and client funds).Examples of funds managed by KFH :

Healthcare Fund (Nursing Home Operators in UK) Swedish Post Office FundPrime Industrial Property FundEthmaar Fund for UK PropertiesAlliance Property FundAl Soor FundBaitak Residential Real Estate FundMillenium Aircraft Leasing FundBAITAK Asian Real Estate Fund

These funds on average provide a cash yield of 8% and IRR of12%

REPORT ON KFH FUNDS AT www.kfh.com

TOPICS






Asset Classes



DEFINITION OF ISLAMIC FUND

Islamic funds are a group of specialised collective investment funds which offer investors the opportunity to invest their surplus cash in a diversified investment portfolio that are managed and selected by professional portfolio managers in accordance to Shariah principles.

AAOIFI defined Investment Funds as “Funds are investment vehicles, which are financially independent of the institutions that establish them. Funds take the form of equal participating shares / units, which represent the shareholders’/ unitholders’ share of the assets, and entitlement to profits or losses. The funds are managed on the basis of either Mudharabah or agency contract” (AAOIFI Financial Accounting Standard No 14, p. 422)

Islamic funds are a group of specialised collective investment funds which offer investors the opportunity to invest their surplus cash in a diversified investment portfolio that are managed and selected by professional portfolio managers in accordance to Shariah principles.

AAOIFI defined Investment Funds as “Funds are investment vehicles, which are financially independent of the institutions that establish them. Funds take the form of equal participating shares / units, which represent the shareholders’/ unitholders’ share of the assets, and entitlement to profits or losses. The funds are managed on the basis of either Mudharabah or agency contract” (AAOIFI Financial Accounting Standard No 14, p. 422)

“Investment funds are permissible by Shariah. Because funds are a form of collective investment that continue throughout their term, the rights and duties of participants are defined and restricted by the common interest, since they relate to third parties’ rights. Hence, in case the Fund is managed on the basis of agency the shareholders’ / unitholders’ waive their right to management, redemption or liquidation except in accordance with the limitations and conditions set out in the statutes and by-law.” (AAOIFI Financial Accounting No 14, p. 422)

SHARIAH RULING IN RELATION TO INVESTMENT FUNDS

SHARIAH RULING IN RELATION TO INVESTMENT FUNDS

STRUCTURE OF TYPICAL ISLAMIC FUND

MANAGERAdministers the operation

of the fund

TRUSTEECustodian of Assets

ASSETS(INVESTMENT PORTFOLIO)

FUNDDeed

INVESTORS (UNITHOLDERS)

ShariahCommittee

ROLE OF THE SHARIAH COMMITTEE / SHARIAH ADVISOR

Ensuring the fund is managed and administered in accordance with Shariahprinciples.Providing expertise and guidance for the fund in all matters relating to Shariah, including the fund’s trust deed and prospectus, its structure and investment, and other operational and administrative matters.Monitoring the funds.Offering the investors with a peace of mind and confidence that their investments are managed based on Shariah principles.

RELATIONSHIP BETWEEN FUND MANAGER AND INVESTORS & REMUNERATION

There are commonly two types of relationship between the fund manager and the investors :-

a) Mudharabah – management of the fund has been undertaken on a mudharabahbasis and the manager is acting as the Mudharib and the remuneration is by the way of a share of the profits generated by the funds.

b) Wakalah - management of the fund has been undertaken on a wakalah (agency) basis and the manager is acting as the agent and the remuneration is by way of a fixed fee arrangement, or the fee is calculated by reference to the value of the fund itself.

TOPICS






Asset Classes



TYPES OF ISLAMIC FUNDS

ISLAMIC FUNDSProperty Funds

Leasing Funds

Commodity Funds

Aviation Funds

REITs FundsSukuk Funds

Hedge Funds

Equity Funds /Private Equity Funds

Shipping Funds

Mutual Funds / Unit Trust

TOPICS






Asset Classes



ASSET CLASSES

Assets (investment portfolio) need to be screened to ensure its compliance with Shariah.Types of assets :a) Financial assets

SharesSukukEtc

b) Non-financial assetsReal propertyAviationShippingCommoditiesInfrastructure projectsEtc

http://www.bankislam.com.my/hal_ind.htm

Shariah Compliant Equities / Shares

EQUITY SCREENINGEquity / Shares

Core Activities : No Prohibited Activities

Financial Ratio : Dow Jones Islamic Index, FTSE Islamic Index etc

Purification “Tainted” Income

TOPICS






Asset Classes



SOCIALLY RESPONSIBLE INVESTING (SRI)

SHARIAH COMPATIBLE INVESTING (SCI)

EthicalSocial conscience & environmentalProactive by using financial muscle to encourage positive change

EthicalSocial conscience & environmentalReligious & based on Shariah principles

SOCIALLY RESPONSIBLE INVESTING (SRI) & SHARIAH COMPATIBLE INVESTING (SCI)

Need to build bridges

between SRI & SCI

http://www.bankislam.com.my/hal_ind.htm

TOPICS






Asset Classes



CHALLENGES FOR ISLAMIC FUND MANAGEMENT INDUSTRY

CHALLENGESRegulatory and tax

issues

Product Development & Innovation

Human Capital – Skills & Expertise

Marketing & Distribution Channels

Building Credibility & Confidence

Competition with conventional funds

Shariah Harmonisation& Convergence

Risk Management

CHALLENGES IN DEVELOPING BRUNEI INTO A REGIONAL HUB FOR ISLAMIC FUND MANAGEMENT

1. To close the gap between Brunei Shariah views & GCC / global Shariah views Shariahharmonization & convergence.

2. To provide a wide range of Shariah compliant assets, products & services to meet the needs of the investors.

3. To create a vibrant market with a good regulatory, legal, tax, accounting and Shariah framework.

4. To educate investors and enhance their awareness on Brunei financial products, instruments and services.

ISLAMIC FUND MANAGEMENT DEVELOPMENT – WAY FORWARD

Both industry players and regulators should strive to improve value proposition of the Islamic market.

Build credibility by improving earning power, transparency, global Shariah compliance, excellent customer service and efficiency of delivery channels of Islamic financial products.

Regulators should strive to create a uniform reporting and disclosure basis of Islamic financial products.

Islamic financial market should increase market share and increase cross-border expansion.

Increase investment in human resource capability.

Knowledge sharing between different Islamic markets.

Kuwait Finance House (Malaysia) Berhad

Level 18, Tower 2, MNI Twins

11, Jalan Pinang 50704, Kuala Lumpur

MalaysiaTEL : (+603) 2055 7777FAX : (+603) 2166 7999

www.kfh.com.my

Thank YouThank You

kfh malaysia) - islamic fund mgt

Documents

socially responsible

kuwait finance

professional

islamic financial

shariah compatible

diversified

fund management

berhad kfh