Ocorian, the specialist global provider of services to financial institutions, asset managers, corporates and high net worth individuals, hosts an expert panel discussion with Mayer Brown on how Shariah-compliant feeder structures can be a relatively straightforward and inexpensive way for US managers to attract capital into their existing funds.
The Middle East has long been associated with ultra-high net worth (UHNW) individuals, and that population is set to surge by 24.6% in the next five years, with Saudi Arabia poised to become home to 72 billionaires and the United Arab Emirates home to 42. Preqin currently counts 262 single and multi-family offices in the region, with an estimated $2tn due to be passed from the current generation to the next in the GCC alone. This presents a significant opportunity for overseas fund managers to access capital in the Gulf and build a presence in the region.
Marc van Rijckevorsel, Head of Business Development for Funds, Americas at Ocorian comments on what’s driving the interest in fundraising from US managers in the Middle East: “The capital influx into the Middle East in the past 12 – 18 months has been very high, in part because of high oil and gas prices. As investors want this capital to be deployed, but which cannot easily be absorbed into the domestic economy, investors are looking globally in other jurisdictions.
“At the same time overseas fund managers, particularly those in the US, are having a more difficult time raising capital in their own markets, making the Middle East an excellent alternative opportunity.”
Lynda O’Mahoney, Global Head of Business Development, Middle East at Ocorian comments on how US managers can access investors from the Middle East: “While sovereign wealth funds are seen as the ultimate sources of capital in the Middle East, family offices present a more attractive market, particularly where they are influenced by the next generation of investors who are seeking to diversify their portfolios out of domestic markets and conventional asset classes.”
Barry Cosgrave, Partner, London and Dubai, at Mayer Brown said: “Family offices have grown in sophistication as they look to secure the wealth for the future and provide for generations to come. They are seeking more access to diversified assets and sophisticated fund and investment managers.
Until recently, it has been challenging for fund managers to do business in the Middle East unless their funds are compliant with Shariah law, which precludes investments that are not haram and excludes companies with high levels of borrowing.
Fund managers used to have to do a lot of work to set up a Shariah-compliant fund, but there is an alternative. A Sharia-compliant feeder structure takes away the need for fund managers to change their conventional fund documentation, reducing the need to change all their documentation which has taken years to put in place.”
Barry Cosgrave continues: “The benefits are that it is a relatively inexpensive structure to operate and maintain. It has now become a very well-accepted structure within the Islamic finance markets and multiple Islamic scholars have signed off on these structures which makes their implementation seamless.”
Ocorian has a dedicated Islamic Finance team of 35 that are focused solely on Islamic finance, both on Shariah complaint investment funds and structures and feeder structures. Ocorian can take on all the work to set up the structure, and the ongoing maintenance and management of that function. Fund managers do not need to worry about the back-office administration as Ocorian takes care of the full process. And the fees and costs for this structure will not be borne by the fund, they will be paid by the investors.