Shariah compliant actively managed certificates (AMCs). The newest investment instrument for Islamic investors
Actively managed certificates have been around for a while — they became quite popular in Switzerland in the early 2000s. This investment instrument grew strong due to its cost and time efficiency, as well flexibility and application possibilities.
Bank Julius Bär defines AMCs as “structured products offering participation in an underlying portfolio of assets”. Other practitioners define AMCs as “securities issued by a company that pay cashflows generated by an underlying portfolio of assets, that is actively managed by a portfolio manager”.
The advantages that AMCs feature as opposed to funds and other asset management operations are massive:
· The costs of setting up and running the program are low;
· The model portfolio can be implemented for virtually any client — minimum investment is in thousands, not in hundreds of thousands;
· Time to market is short without the complexity or administrative burden of setting up a managed account or a fund. Typically, an AMC can take four weeks to come to market.
AMCs are issued by a Special Purpose Vehicle (“SPV”). SPVs are off balance sheet, bankruptcy remote standalone legal entities. In other words, any investor, not just the wealthy ones, can gain access to professionally managed opportunities, including investments in lucrative venture capital and private equity opportunities.
So, creating a Shariah compliant version of AMCs is not particular challenging. It requires a careful selection of underlying assets — equity, property, real assets, or commodities that are not Haram, with moderate permissible level of debt and a fetwa related to the product.
Let’s take public shares for example — the S&P 500 Index includes over 200 companies that are Shariah compliant. Most startups and private companies do not break Shariah debt covenants and are Shariah compliant as long as they are not involved in Haram activities. So, the universe of permitted assets is incredibly large.
AMCs are “light documentation” and fast to market tools allowing a manager to capitalize on interest in a specific investment theme — the best way to react to hot investment topics. We have finally entered the time when ethical investments — ESG-oriented companies, Green Sukuk, renewable energy have become very attractive.
I am very confident that in 2023 we will see at least 10–12 Shariah compliant AMCs. In the meantime, I discovered an interesting instrument — Orestes “Hydrogen for Clean Energy in Europe by 2030” — a Shariah compliant AMC that invests in Green and Turquoise hydrogen projects in Europe — fuel cells, H2 storage facilities and power generation. Many of these companies when scaled up will find themselves applicable for large hydrogen industries of Saudi Arabia, the UAE, the US and China. With a fetwa from Yassar Research, the product promises to be ethical, Shariah compliant and profitable for similarly-minded investors.
Shariah encourages gaining wealth as long as it is done in a Halal manner.