The Islamic way of wealth

Saftar Sarwar has observed that Shari'ah-compliant financial products have performed well in times of turbulence. Picture: Julie Howden
AIMING HIGH: Saftar Sarwar has observed that Shari’ah-compliant financial products have performed well in times of turbulence. Picture: Julie Howden

The credit crunch has added a new significance to the wealth amassed in the oil kingdoms of the Middle East. While western bankers count the cost of a reckless spending spree, assets that comply with Islam’s ban on the receipt of interest are growing at about 15% a year and may hit $1000bn by 2010, experts say. A quadrupling of oil prices since 2002 has inundated Arab and Islamic lenders with billions of dollars that are now looking for a home, and financial centres from Tokyo to London are clamouring for a piece of the action.Add to that the burgeoning Asian wealth in the UK, and a growing interest among Muslims in how it is managed, and it is easy to see how 37-year-old Saftar Sarwar persuaded Barclays to give him the keys to a potentially new private wealth market in Scotland.

“There is a lot of money out there,” says Sarwar, who spent six years with Baillie Gifford and five with law firm Lindsays before becoming another hire by Mark Little in his ambitious Scottish expansion of Barclays Wealth. “Increasingly a lot of money in the Middle East is being managed Islamically-compliant, a lot of it is to do with the fact that stakeholders, the underlying investors and depositors, are demanding that.”

At the start of the millennium, between 10% and 20% of banking and investment in Saudi Arabia was Islamically-compliant, now it is closer to 60%, Sarwar says. The deal to buy carmaker Aston Martin was financed by a group of Middle Eastern investors within a sukuk or Islamic bond, as was the attempted deal to buy Liverpool FC last year.

do_dp_ad(); “It gives them a broader spread of investments and is just as attractive in terms of return,” Sarwar says.

He adds: “It is real assets, not theoretical, therefore much of this area has avoided the current sub-prime investment crisis. These guys have got a lot money behind them. The oil price is not going to come down any time soon. So wealth creation is going to continue apace.”

Shari’ah-compliant products cannot yield interest, so they are linked directly to underlying investments such as commodities or infrastructure. “The return might be benchmarked against a base rate such as Libor plus 1% or 2% but not directly linked to it, Sarwar explains.

The new breed of Islamically-compliant equity funds are modelled on conventional ethical funds, screening out sectors that are not compliant with Shari’ah investment principles. Unlike many ethical and especially green funds, the Islamic funds major on the oil and gas sector, but exclude many financials. The biggest holdings in Barclays Global Investors’ new iShares exchange-traded funds are Exxon Mobil and Gazprom. The world Islamic fund has 22% in energy, the USA fund 24% and the emerging markets fund almost 30%, while the financial sector allocations are tiny.

Sarwar observes: “Islamic-compliant funds have done well over the last year or so – obviously banks have had steep falls.” Media stocks, because of connections to pornography, as well as gaming and drinks companies tend to be excluded from the Islamic indices.

A lot of the Barclays business is in the Middle Eastern market, such as its joint venture with Shari’ah Capital to launch a large absolute return fund for institutional clients, likely to be followed by the first Islamically-compliant hedge fund to private investors offering consistent absolute returns. But that awareness and appetite is seeping into the UK. Sarwar estimates the UK’s Asian wealth market is £3bn to £4bn “within the Muslim community, not including Asians outwith this group”.

Clients follow their faith but they want the best return and best lending proposition

He says: “We have got a massive opportunity within our remit or framework we are seeing that a lot of high net worth individuals who want money managed professionally are looking at these options – previously that was never on the agenda. As well as that, there are a lot of high net worth Muslims, a lot of professional Muslims, who are increasingly looking for private banking solutions per se. Some of them are looking for Shari’ah-compliant solutions. My role within Barclays, out of Edinburgh, is to try to create a bit of structure around it.”

Sarwar is charged with helping to build up Islamic product awareness across Barclays in the UK, but he is chiefly using his Glasgow family background and contacts to give Barclays a headstart in a market where he believes other banks are doing more talking than business.

Lloyds TSB is promoting its UK-wide Islamic banking offer while UBS is said to be trying to break into the market from London.

“My view is that historically the private banks and wealth managers have been pretty stuffy and traditional and have never really attracted many of these clients. I spend a lot of time in Glasgow talking to Asians of all faiths and backgrounds, resident non-domicile clients who can hold their assets offshore and these guys certainly are up for conversations about wealth management and private banking they may have IHT problems potentially, succession problems in the family business, equally they may be going more towards their faith as they are getting older. I literally can speak their language, being fluent in Urdu, Punjabi and Arabic.”

But he adds: “People want different options, we can provide all those options. A lot of clients might be Muslims and follow their faith but they want the best return and the best lending proposition in a conventional manner.”

There may also be scope for helping mosques manage their finances. “Some of them have got sizeable cash balances, from donations, charity collections and so on. We are trying to bring professionalism into the community.”

He is clearly the right man for the mission. “I am local, my family was originally from Pakistan, I was born in Partick, at school in Kingspark, Bellahouston, living in Pollokshields, then I came through to Edinburgh upon graduating from Strathclyde University in economics and accountancy.”

Baillie Gifford, known for its Oxbridge graduates, gave the Partick boy a thorough professional training, while Lindsay’s offered a start in wealth management.

“It wasn’t for me, it wasn’t entrepreneurial enough,” says Sarwar. “I wanted to build my own client base, my own franchise, I genuinely saw an opening to do that. I know that is beginning to be proved right and hopefully we are going to do something big in the coming years.”

 

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