* Islamic endowment returns have typically been poor
* Safa says first to offer Islamic asset allocation
* Sharia investing has outshone conventional peers-Sandwick
ZURICH, July 24 Veteran Geneva-based banker and Islamic finance expert John Sandwick has teamed up with Saudi adviser Wafi International to target the Islamic endowment market, a $500 billion capital pool he said had been poorly served to date.
Waqf, or charitable endowments invested according to Islamic principles, are often used to fund schools and hospitals, but the charitable trusts that generally manage them tend to produce poor returns.
Because of the largely informal nature of the market, estimates of its size vary widely. USAID, the United States' international aid body, said philanthropic giving in Muslim communities worldwide was between $250 billion and $1 trillion a year.
In late July, Ahmed al-Najjar of Egypt's Freedom and Justice Party said waqf endowments in the country totalled about half a trillion Egyptian pounds ($82.25 billion) but, citing a report by the Ministry of Religious Endowment, said they only yielded 0.3 percent a year.
"This market is just too big to ignore, but conventional asset managers have spent their time selling derivatives and hedge funds rather than make efforts to unlock this sleeping giant," said Sandwick, who will launch Safa Investment Services, an Islamic wealth and asset manager, next month.
Traditionally this money has been invested locally in illiquid real estate or real-estate linked financial products, causing lopsided returns, particularly after the regional property price collapse that began in 2008, Sandwick said.
"Today the sharia-compliant mutual fund and exchange-traded fund markets reach $100 billion in assets under management," he said.
Sandwick said when Safa is launched it will be the first to actually perform Islamic asset allocation, rather than selling individual products.
Some investment analysts have said the costs associated with investing in sharia-compliant assets make them more expensive than traditional assets like stocks and bonds, ensuring they will always underperform, but Sandwick refuted this.
"The costs of investing in sharia-compliant assets is a rounding error, they are so insignificant as to be barely measurable thanks to the commercialization of reputable services that certify sharia compliance," he said.
"But, as we have repeatedly shown, the performance of sharia-compliant investing has outshone conventional peers by a long shot, especially during the financial crisis, which showed it was very risky owning derivative-rich, overleveraged securities, and securities without true underlying assets."
Safa is joining forces with Bank of London and the Middle East (BLME) and Riyadh-based Wafi, a waqf adviser, to carry out the first-ever research on Saudi Arabia's waqf market, estimated at between $100 billion and more than $250 billion.
The research results will be published in March 2013, and are expected to underpin further expansion of waqf asset management, Sandwick said. ($1 = 6.0793 Egyptian pounds) (Reporting by Martin de Sa'Pinto; Editing by Helen Massy-Beresford)