Islamic Fund Management
15
corporate behaviour. Screening by investors in the public space also influences corporate
behaviour (e.g. negative screen from the boycotting of companies practising apartheid in South
Africa by investors in the 1970s, to modern-day ESG screens employed by powerful investor
networks, such that companies are incentivised to adopt high ESG standards).
The advantages of developing an asset management industry are as follows:
 Low capital inputs, high intellectual property inputs.
 Stable earnings when minimum volumes are achieved.
 Less earnings volatility.
 Broad gross and net margins.
 High return on shareholder capital.
 Much lower risks than investment banking (Sandwick, 2016).
From a macroeconomic perspective, a thriving fund management industry plays an important
role in:
 Promoting savings and investment.
 Circulating capital in the real economy.
 Providing the needed liquidity to fund the capital requirements of sovereigns,
institutions and individuals.
 Enabling greater authenticity of risk-sharing than typically possible in banking.
 Complementing the Islamic banking and takaful sectors.
 Contributing to economic development and growth.
From a microeconomic perspective, professional management of pooled investments offers
significant advantages. It allows individuals and institutions to combine smaller amounts of
money into a larger sum, thus participating in a wider range of investments that may not be
feasible for an individual investor (Gerber, 2008). This enables investors to attain economies
of scale and become part owners of real assets or business activities, something not possible
for an individual investing alone. Investors also benefit from lower costs (i.e. smaller
brokerage commissions) as the cost for professional management is spread across many
investors. Fund management further allows investors to profit from a reduction of risks
through diversification. The pooled funds can be invested in different companies, sectors,
countries and regions, thus gaining access to a vast array of investment opportunities at
minimum risk. Other advantages include:
 Convenience in getting in and out of the fund.
 Ease in selling back units and reverting to a liquid position.
 Convenient record keeping and administration.
 Good financial returns over the long term.
 Transparency, access to information and better corporate governance.
 Possible tax benefits.
 Well regulated, hence investors are assured of a certain level of protection.