Islamic Fund Management
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2. REVIEW OF GLOBAL ISLAMIC FUND MANAGEMENT INDUSTRY
The Islamic equity market has evolved through the years, from the development of Shariah-
compliant screening methodologies that have led to the development of Shariah-compliant
stocks and Islamic indices, to the development of more innovative structured investment
products and different types of funds. Besides products and services, the Islamic equity market
has also expanded in terms of market players, geographical coverage, infrastructure
development, financial technology, sustainable strategies, and other areas. This chapter sheds
light on the development trends in the global fund management industry, particularly Islamic
funds. It explains the principles, roles, functions, mechanisms, evolution and future trends in
Islamic fund management.
2.1 Development of Global Fund Management Industry
2.1.1 Definition of Fund Management
Fund management involves a group of investors channeling their surplus money to a legal
entity known as a ‘fund’, which pools the collected funds and invests it in a diversified portfolio
of securities and other assets to achieve specific financial goals (ISRA, 2015, p. 524). Investors,
usually known as shareholders or unit holders, can be individuals or institutions. The legal
entity that professionally manages the funds and undertakes the investment on behalf of the
investors is known as a fund manager or fund management company. The fund manager
handles the clients’ investments, establishing a portfolio of assets constituting securities such
as stocks, bonds, money market instruments, a combination of these or even other funds. The
fund’s portfolio of investments is structured and maintained to match its investment
objectives, as stated in its prospectus. The flow chart of the fund management process is
depicted i
Figure 2.1: Flow Chart of the Fund Management Process
Source: ISRA
The fund sells shares or units to investors and redeems shares from those who wish to have
their money back, at a price determined by the current net asset value (NAV) of the fund
(Gerber, 2008, p. 3). The NAV is the price of one share in the fund at the end of the trading day.
To get an initial unit value of a share at the time the fund is created, the monetary value of its