With all the controversy surrounding hedge funds and short selling, could Islamic finance provide a more responsible approach to the philosophy and management of hedge funds? One feature that would distinguish a hedge fund built upon Islamic principles is that short selling would not be allowed because it amounts to selling an asset that isn’t owned.
With the announcement of Deutsche Bank to launch a sharia compliant hedge fund next month, it will be interesting to see how it will work. The industry is still very much in its infancy – Islamic banking really only emerged in the 1970’s so there is still a great deal to learn especially as the industry continues to research and develop Islamic financial products. The following table which appeared in the Economist indicates the growth potential of Islamic finance:
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