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Meeting the Needs of Islamic Finance Innovative and the right partnership will help spur the growths of the world’s fastest growing financial sector. By Tony Goh

Bank Islam Malaysia Bhd, being the premier Islamic bank in the country,

naturally has a crucial role to play in Malaysia’s push to be the global Islamic Financial centre. Its asset management arm, BIMB Investment Management Bhd (BIMB Invest), is at the forefront of this government led initiative that will have far reaching impacts on the financial sector.

CEO Najmuddin Lutfi shared with Smart Investor about the BIMB Invest’s latest initiative in product innovation, Malaysia’s first multi-currency global equity Shariah-ESG fund - the BIMB-Arabesque i Global Dividend Fund 1 iG - in partnership with Arabesque Asset Management, world’s 1st ESG Quant Specialist.

Below are the excerpts of the Q& A.

Smart Investor (SI): With Islamic Finance continuing its robust growth trajectory in the global financial arena, what are the main catalysts that will drive the expansion of Shariah compliance products and services here in the domestic market? Which regional markets offer the best potential for Islamic Finance? Najmuddin Lutfi (NL): Malaysia is one if not the most advanced Islamic Finance marketplace in the world. Fundamentally, it has already institutionalised a very clear regulatory framework through the Islamic Financial Services Act by Bank Negara in 2014 to provide

clarity to intermediaries and the market to conduct Islamic Finance activities from banking, Takaful and capital market domestically and cross-border activities. This is crucial to drive the market activities including the development and expansion of Shariah compliance products.

On the other hand, the fund management industry in Malaysia is by far the leading Islamic Fund Management marketplace in the world. The Islamic fund management expertise cuts across all asset classes; equities, Sukuk, private equity, exchange traded fund (ETF), REIT. Just on the Islamic unit trust funds as at October 2015, it has 201 number of approved unit trust funds and are the highest in the world and the industry alone manages about RM120 billion in assets under management (AUM), as at June 2015. These capabilities are not domestic centric but capabilities that are beyond Malaysia’s shore and in multiple currencies, offering cross-border Islamic Fund Management solutions.

The key is the continuity of innovation of Islamic Finance solutions that will benefit ultimately the consumers and investors. This is also important to the Islamic Finance industry as we develop to become an Islamic Finance marketplace to

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In Malaysia, the regulations and the expertise are there. For example we already have 21 Islamic & International Islamic Banks, 7 Takaful companies, 5 Retakaful companies, 17 Islamic Fund Management companies, 6 Investment Banks and 14 full fledge Islamic Finance legal services to provide wide ranging Shariah compliant products and services, for domestic demand as well as for global markets.

Takaful Companies• AmFamily Takaful Bhd • Etiqa Takaful • Hong Leong Tokio Marine Takaful • MAA Takaful Berhad • Prudential BSN Takaful • Sun Life Malaysia Takaful Bhd • Takaful Malaysia

Retakaful Companies• ACR ReTakaful • BEST RE • MNRB Retakaful • Munich Re Retakaful • Swiss Re Retakaful

Legal Firms• Abdul Raman Saad & Associates • Adnan Sundra & Low • Albar & Partners • Azmi & Associates • Christopher Lee & Co. • Kadir Andri & Partners • Lee Hishammuddin Allen & Gledhill • Mohamed Ridza & Co. • Naqiz & Partners • Shearn Delamore & Co. • Shook Lin & Bok • Skrine • Wong Partners • Zaid Ibrahim & Co.

Islamic Fund & Wealth Management Companies• Aberdeen Islamic Asset Management • AmInvest • Amundi Islamic • Asian Islamic Investment Management • BIMB Investment Management Berhad • BNP Paribas Investment Partners • CIMB-Principal Islamic Asset Management • Eastspring Al-Wara’ Investments • Franklin Templeton GSC Asset Management • i-VCAP Management • Kenanga Islamic Investors • KFH Asset Management • Maybank Islamic Asset Management • Muamalat Invest Sdn Bhd • Nomura Asset Management • RHB Islamic International Asset Management Bhd • Saturna

Islamic Banks• Affin Islamic Bank Berhad • Al Rajhi Bank • Alkhair International Islamic Bank • AmIslamic Bank • Asian Finance Bank • Bank Islam Malaysia Bhd • Bank Muamalat • Bank of Tokyo-Mitsubishi UFJ Malaysia • CIMB Islamic Bank • CITI Malaysia • Deutsche Bank AG, IIB • Hong Leong Islamic Bank • HSBC Amanah Malaysia • Kuwait Finance House Labuan • Kuwait Finance House Malaysia • Maybank Islamic Banking Group • OCBC Al-Amin Bank • PT. Bank Muamalat Indonesia, Tbk • Public Islamic Bank • RHB Islamic Bank • Standard Chartered Saadiq

Investment Banks • Affin Investment Bank • AmInvestment Bank • Maybank Investment Bank • MIDF Amanah Investment Bank • RHB Investment Bank• RUSD Investment Bank

Source: Malaysia International Islamic Finance Centre (MIFC)

offer best solutions and capabilities to the world. At BIMB Invest, we aim to deliver the best of Shariah fund management solutions to institutional and retail investors, domestically and internationally. In November 2015, we launched a multi-currency Shariah-ESG global equity fund feeding into a Luxembourg registered fund, the Arabesque Systematic that uses algorithm to pick 100 best stocks on a daily basis that started from 77,000 stocks globally and will respond to daily market volatility through equity-cash daily allocation to manage downside risk. In its stock selection process, it combines both financial and non-financial information e.g. the ESG (environmental, social, governance) scoring. In addition to its portfolio risk management, for each stock in the portfolio, it will only have a weightage of around 1% to manage concentration risk.

SI: On BIMB Invest’s partnership with Arabesque Asset Management, what is the significance of this collaboration and how will this help in Bank Islam’s drive to be a regional player?    NL: BIMB Invest’s partnership with Arabesque Asset Management will strengthen BIMB Invest’s investment management and product development capabilities, the core capabilities for BIMB Invest to become a regional Islamic Fund management house. The partnership will advance BIMB Invest to offer global Shariah fund management solutions in the region as well as internationally. The partnership brings the algorithm technology to offer fund management solutions

that are Shariah compliant and level playing field with the conventional fund management industry. With the algorithm technology, we make it possible for investors to achieve all – responsible and Shariah

investing with potentially high investment performance. Through the collaboration with Arabesque Partners, BIMB Invest now has greater flexibility to invest into global markets on behalf of our investors and we aim

ISLAMIC FINANCE PLAYERS IN MALAYSIA

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to deliver best performing global and regional fund management solutions across asset classes and it happens to be Shariah.

This partnership is Bank Islam Group’s response in its attempt to meet the need for constant product innovation, to diversify its sources of income, to widen the spectrum of its business lines, to expand its customer base and to enhance its distribution channels by stretching our global reach. This strategic tie-up could serve as a gateway for the Bank Islam Group to penetrate international markets, reflecting its vision to become a global leader in Islamic banking. Arabesque chose a partnership with BIMB Invest due to our strong position in Malaysia and the quality of our client network provides an excellent opportunity to access a market keen to invest in Shariah-compliant global equities. Arabesque strongly believes that BIMB Invest, through its direct link with Malaysia’s first Islamic Bank (i.e. Bank Islam) is the best suited asset manager in Malaysia to introduce Sustainable/ESG investing to Malaysian investors.

SI: Can you share with us what are the main characteristics of this multi-currency global equity fund and what are the main investment guidelines to fit its ESG status? NL: This fund is Malaysia’s first multi-currency, Shariah and ESG Compliant, Global Equity Fund that offers cutting edge fund management technology and aims to outperform any market conditions for sustainable performance. The fund combines sustainability, financial and momentum analyses to drive performance and manage risks while expressing the clients’ personal values and beliefs. Investors now have exposure into a more efficient investment portfolio that responses to daily market volatility with real time stock selection process for potentially superior investment performance.

The integration of non-financial information as a critical factor in the investment process is fast becoming a global trend. Our partner, Arabesque, uses more than 1,000 charts and patterns to organise an investment universe of 1,000 Shariah compliant global stocks, which the Fund will draw from, into a combination that delivers a superior risk-return profile using fundamental, quantitative, forensic, financial and non-financial data. Central to Arabesque’s investment process is the integration of non-financial i.e. Environmental, Social and Governance (ESG) information into fundamental and quantitative financial models. The first of its kind, the fund’s strategy has been built-in collaboration with leading professors from Harvard, Oxford, University College London, the Fraunhofer Society, and Maastricht.

SI: The global equity market is expected to remain volatile in the foreseeable future, why is this a right time to introduce equity based fund? NL: Volatility does present opportunity, given the impending circumstances of a Federal Reserve rate hike, and presents opportunities itself for sectors denominated in US Dollars. Other systematic volatility themes, e.g. oil slump or the US economic recovery represents opportunities in their respective sectors. Launching a global equity fund will provide higher trading opportunities, diversification and reach in terms of investable regions, industries and stock selection. Concurrently, a global equity fund will also provide diversification in terms of currency, in line with the respective regions that the fund invests in. Hence, the launch of a global equity fund will suffice and cater to the requirement for investors wanting to improve investment reach in terms of opportunities in other regions, multitude of investable industries and higher scope of stock selection, on top of diversifying multiple currency, as opposed to investing in a particular region of the world. The BIMB-Arabesque i Global Dividend Fund 1 will provide a cost-effective way to achieve all these features, while taking advantage of market volatility concurrently. The fund responses to market volatility with daily stock selections and daily stock rebalancing process, to not only reduce portfolio risk but to also actively drive performance, which makes the fund unique as opposed to most global equity

Shariah funds. Najmuddin Lutfi, CEO of BIMB InvestmentManagement Bhd