Islamic Fund Management
19
Type of Fund by
Investment Portfolio
Description Assets Invested In
funds from other countries or in different
sectors and asset classes, with various risk
exposures.
REIT Invests in a diversified pool of properties, e.g.
commercial buildings, student
accommodations, retirement homes, shopping
malls, housing complexes, land and
plantations. Returns take the form of rental
payments. REITs usually have to distribute
most of their gains as dividends to their unit
holders.
Real estate.
For Islamic REITs,
tenants must be
involved in Shariah-
compliant activities.
Sources: ISRA (2015), PWC (2016), ISRA
While the abovementioned funds can have their Islamic equivalents, there are also some―such
as PE and VC funds, hedge funds and other specialist funds―that are commonly classified as
alternative funds. PE and VC funds, for instance, do not actively invest in the capital markets.
Others such as pension funds and sovereign wealth funds are often loosely referred to as
funds, even though they are institutions with multiple ‘funds’. These are classified in Table 2.3
below as alternative types of funds. Within this category, certain types of Islamic funds, such as
ijarah, murabahah, hajj and waqf funds, are described in more detail.
Table 2.3: Alternative Funds and Some Specific Types of Islamic Funds
Alternative
and Islamic
Funds
Description Assets Invested In
PE and VC
Funds
These refer to investments in PE and VC firms, with
the aim of improving the performance of the
companies and disposing of these investments at a
higher rate of return. PE involves investment in more
mature businesses while VC refers to investment in
riskier start-up businesses. Investors of these funds
are mostly institutional and high-net-worth clients,
which typically hold them for more than 10 years
plus a number of extensions. PE/VC funds are high-
risk investments; they are expected to provide higher
returns, outperforming traditional asset classes.
Riskier start-up
companies (VC) and
mature businesses
(PE).
Pension
Fund
Collects the pension contributions of employers and
employees, and invests in a diversified portfolio of
assets. Generally has large amounts of money to
invest and stand among the major stakeholders of
listed and private companies.
Invests the pension
contributions of
employees and
employers.
Hedge Fund Distinct from mutual fund/unit trust as it pools funds
from sophisticated and institutional investors and
invests in a variety of assets, with complex portfolio
construction and risk-management strategies. Islamic
hedge funds have attracted much controversy while
others allow Shariah-compliant hedge funds.
Equities, fixed-income
securities, options,
futures, swaps.
Sovereign
Wealth Fund
Refers to an investment fund owned and managed
directly or indirectly by a government to achieve
Infrastructure, real
estate, commodities