Similarly, on the funding side, Australia's substantial infrastructure funding requirements, as well as those of its massive resource development industry, could be filled at least in part through sukuk issues directed at offshore investors. More flexible regulatory and taxation measures would greatly facilitate these developments. The Australian government has at least made positive statements toward this end, but so far it has done nothing to loosen the existing restraints.
This chapter discusses Australia's Islamic finance industry and its possibilities, focusing specifically on asset management, tax and accounting, retail finance, microfinance, takaful and re-takaful, issuances and sukuk, the debt capital market, the equity capital market, regulatory issues, cross-border financing, and the future.
Asset Management
Australia has an active and growing conventional fund management industry. With assets of some A$1.7 billion in 2013, it is already the fourth largest in the world. It is a strong supporter of the United Nations Principles for Responsible Investment; therefore, socially responsible managed investments are popular with local investors. Since Shari'ah-compliant funds follow some of the same principles, Shari'ah-based funds would seem to have some attraction. Only a few managers, however, offer such products. Some of these so far are MCCA, Crescent Wealth, Hyperion Fund Management, LM Australia, and the Brisbane Islamic Investment Fund.
MCCA, as explained later in the retail section, manages the MCCA Income Fund. When it was created in 2009, it claimed to be the first Shari'ah-compliant investment fund in Australia. The fund allows retail investors to purchase as little as A$500 of a diversified portfolio of Shari'ah-compliant home loan mortgages and also provides a funding mechanism for MCCA to arrange new lending. The fund earned its members a low risk return of 5.11 percent in 2011ā2012āan attractive investment for any individual Muslim's self-managed superannuation funds. This is an important market because overall self-managed funds account for one-third of the assets of Australian superannuation funds.
Crescent Wealth was created specifically to offer Shari'ah-compliant investment products to both local and overseas investors. Its funds have been developed and managed under the supervision of the International Shari'ah Supervisory Board of Amanie Islamic Finance Consultancy and Education as well as the Australian Investment and Securities Commission. The Westpac Bankāaffiliated Asgard investment platform now offers four Crescent investment products through its eWRAP investment account and superannuation programs. These include the Crescent Australian Equity Fund, the Crescent Islamic Cash Management Fund, the Crescent Diversified Property Fund, the Crescent International Equity Fund, and a Shari'ah-compliant superannuation fund, the Crescent Wealth Superannuation Fund.
The Crescent Australian Equity Fund is the best-known local product. It was launched in July 2011 to provide a Shari'ah investment vehicle for Australian equities. After screening some 2,000 listed companies through the Australian Securities Exchange (ASX), Crescent Wealth helped create its own ASX Islamic index, now known as the Thomson Reuters Crescent Wealth Islamic Australia Index. The specific share purchases are selected from a population of some 142 firms, which compose roughly 55 percent of the ASX's overall market capitalisation. Its major investments as of August 2013 included Woodside Petroleum, BHP Billiton, Rio Tinto, and Slater & Gordon. A major insurer, Aon Hewitt, was one of the initial seed investors in the fund, and Sigma Funds Management serves as a subadvisor for the actual day-to-day management of the investments.
The Crescent Islamic Cash Management Fund was created on May 27, 2012, in conjunction with the Bank of London and the Middle East to invest in sukuk and other Islamic liquidity products. Any short-term deposits are placed offshore with HSBC Amanah. Its asset allocations can vary, but its intention is to hold roughly half in long-term investments and the rest in Islamic bank terms deposits. In August 2013, the mix was actually 30 and 70 percent, respectively.
The Crescent Diversified Property Fund was seeded on February 22, 2013, and complements Crescent's equity funds with a more Shari'ah-based income-focused investment option. Crescent Wealth is the manager, but it is also advised by Freehold Investments and Evergreen Capital Partners. The fund has planned an asset allocation of up to 50 percent in unlisted property securities, 45 percent in listed property securities, and 5 percent in cash. Its main holdings in August 2013 included the Westfield Retail Trust, Stockland Property Trust, Bunnings Warehouse Property Trust, CFS Retail Property Trust, and the Commonwealth Property Trust.
The Crescent International Equity Fund was also seeded on February 22, 2013, for Shari'ah investing in overseas equities. It is managed by the Malaysian arm of a well-established U.S.-based Islamic fund manager, Saturna Capital. The latter's U.S. funds hold a five-star Morningstar ranking.
The Crescent Wealth Superannuation Fund was created on May 22, 2013, to allow Muslims to invest in a public-offer Islamic product rather than being forced to create their own self-managed superannuation fund and then have to select their own Shari'ah investments. The availability of such a product is important because employers are required by law to make a contribution equal to 9.25 percent of their employees' salaries into a superannuation fund. For amounts of less than $250,000, a self-managed fund would be much more expensive than most public-offer ones.
Hyperion Asset Managers is a Brisbane-based funds manager that created the Hyperion Australian Equity Islamic Fund in 2010. It uses an Islamic screen to create an acceptable Shari'ah investment population of Australian listed shares, from which it selects the best investments, following a value-growth high-conviction approach. It was designed for offshore investors seeking an exposure in Australian equities rather than for local investors and was therefore established in Bahrain rather than Australia. As of August 2013, it was still listed by the Central Bank of Bahrain as being approved locally as a collective investment.
The LM Australia Alif Fund was launched in 2009 to provide a Shari'ah-compliant income stream from a diversified portfolio of Australian-based real estate holdings. These include industrial and retail properties, retirement housing, and some real estate development. It was designed to attract offshore investment from Asia and the Middle East with Amanie Solutions of Dubai as its Shari'ah advisor. Unfortunately, its manager, LM Australia, suffered some financial problems and is now in liquidation.
The Brisbane Islamic Investment Fund (BIIF) is a wholesale Australian unit trust created to invest in small and medium unlisted businesses. Its target industries include manufacturing and services, energy and resources, real estate, solar and clean energy, livestock, and tourism following Islamic principles. Its initial investments are planned for, but not limited to, Queensland and Indonesia. Like a venture capital company, it addresses the potential liquidity problems with such investments by requiring any units purchased to be held for at least seven years and dealing mainly with institutional investors from Malaysia, Indonesia, and the Middle East. It was launched on January 6, 2014, by an Australian firm, Business Custodians Limited, which also serves as BIIF's manager and trustee. Its Islamic matters are overseen by the Australian Shari'ah Board for Islamic Finance of the Australian Centre for Islamic Financial Studies. Though not yet involved in Islamic funds management, the National Australia Bank (NAB), through its nabInvest operations, owns a majority interest in a Singapore joint venture with Oxley Capital Group and Mitsui called nabInvest Oxley Singapore. The firm manages conventional real estate trusts in Singapore, of which the Cambridge Industrial Trust is the best known. It is sometimes suggested, however, that it may create an Islamic property trust as part of its offerings.
In the future, the asset management business may change considerably as a result of the recent progress with the so-called Asian Passport for investment funds. This would allow funds approved in one country to be offered to residents in other member countries. Australian managers would gain access to other markets, and the Australian market would also be opened for overseas Islamic products to be offered locally. If it is successful, the major existing local providers will undoubtedly move quickly to offer their own competing products.