Page 29 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

14 Introduction

example, the strong preference for Shariah-compliant investments
has motivated asset managers to concentrate their efforts on develop-
ing Islamic products more than non-Islamic ones. Similarly, family
businesses and corporations increasingly see Shariah-compliant capital
structures as highly desirable, both for religious reasons and to attract
domestic capital and investors.
Two key forces may act to drive greater interest in Islamic invest-
ments by large GCC institutions. First, the Islamic investment indus-
try continues to mature and to develop broader and deeper products
and services to meet the needs of sophisticated investors. Second, and
perhaps more important, there is increased pressure from the stake-
holders of Gulf institutions to consider Islamic investments. As bene-
ficiaries, citizens, government officials, and the management of these
investment bodies become more aware of (and comfortable with)
Islamic investments in their personal lives, they may naturally be
motivated to explore Shariah-compliant alternatives at the institu-
tional level. Considering the size of some Gulf institutional investors,
even modest shifts in their allocations toward Islamic investments
could have a massive impact on the size of the Islamic investment
industry.
In addition to these main forces, other environmental shifts may
also support greater interest in Islamic investments by Gulf investors.
The global financial crisis has fostered a greater appreciation among
Muslims of the prudential aspects of Islamic investment principles
and revealed the risks of certain speculative conventional investment
modes. Furthermore, as Gulf family businesses expand and rationalize
their business portfolios, the “growth capital” that they will require is
a natural need that fits well with the spirit of Islamic investment prin-
ciples. As Gulf investors look to stimulate their local economies,
Islamic investment modes are a suitable channel, as many business
owners in the region prefer Shariah compliance.
A final trend that we explore—discussed in Chapter 8—is the
heightened visibility and transparency of Gulf investments in over-
seas markers. Despite their significant scale, GCC-based investors
have traditionally maintained a low profile because of the traditional
and conservative nature of their investments and their relatively
small equity stakes in global firms. As GCC investments have become
more sophisticated and equity-oriented, demands for disclosure and
transparency have grown. The controversy regarding Dubai Ports
World was a watershed event in raising the visibility of GCC
investors and their potential influence over global companies.