* Aims to raise $100 mln, sees viability at $30 mln
* Targets 15 pct rate of return, net of fees
* Combines Islamic and green investment themes
By Bernardo Vizcaino
SYDNEY, July 18 Luxembourg-based Sustainable
Capital has announced the launch of a sharia-compliant forestry
fund, part of a trend toward crossover products that appeal to
Islamic investors as well as those interested in green
The firm aims to raise $100 million in the open-ended fund,
which starts its offering period next Monday and will invest in
the agricultural, biomass and forestry sectors.
Islamic finance adheres to religious principles but the
industry has only recently begun to stress the theme of wider
"Sustainability has been a challenging conversation in the
Gulf, as it was regarded as a competing asset class. But energy
security cannot be built on one source alone," Michael Young,
the fund's investment advisor, told Reuters. "Countries are now
Forestry has had to contend with a preference among many
Islamic investors for more familiar real estate and hedge fund
In a bid to differentiate itself, Sustainable Capital has
highlighted the inflation protection and steady-return qualities
of its new fund, which will aim for a 15 percent rate of return
net of fees.
It would be reasonable for most long-term investors to
allocate 5 percent of their portfolios to green investments,
though some preferences may go as high as 10 percent, Young
A fund size of $30 million would make the product viable,
but reaching its $100 million optimal size could take from
"three months to three years", Young added. The ultimate aim is
to raise $250 million.
Capital-raising and achieving scale have been a problem for
sharia-compliant fund managers, with 64 percent of the estimated
800 Islamic funds globally having less than $75 million in
assets, according to consultants Ernst & Young.
This has prompted boutique firms, which often lack developed
sales channels or established ties with Islamic financial
institutions, to rethink their marketing strategies.
Sustainable Capital plans to use strategic partnerships to
tap Gulf, Asian and European markets, in order to extend the
firm's distribution capabilities and keep operating costs low.
It will seek at least two distributors in the Gulf, one
focusing on Saudi Arabia. The firm sees the bulk of its investor
base eventually coming from the Gulf and Asia, Young said.
One reason for the lack of close ties between the Islamic
and ethical investor communities is geographical: Islamic
investors have strong roots in the Middle East and southeast
Asia, while the ethical investment industry has its strongholds
in North America and Europe.
Also, green investments have generally been built using a
"positive screening" approach, in which funds identify specific
sub-sectors and economic processes which they like. Islamic
finance has emphasised "negative screens" which forbid investing
in areas such as gambling, tobacco and alcohol.
However, with its use of asset-backed deals, Islamic finance
also has an ideological emphasis on promoting real economic
activity instead of pure monetary speculation. So firms such as
Sustainable Capital see commonalities with ethical investment.
In April, London-based Siyam Capital said it planned to
launch sharia-compliant philanthropy, social housing and
timberland investment products by the end of this year.
In March, a "green sukuk" working group was launched by the
Climate Bonds Initiative, the Clean Energy Business Council of
the Middle East and North Africa, and The Gulf Bond & Sukuk
Association. Its aim is to promote issuance of sukuk to finance
climate change investments and renewable energy projects.