Foreword
It has been my pleasure to know and work with Noripah Kamso for about 10 years now. I was pleased to hear that Noripah was writing a book on Islamic asset management and felt very honored when she asked if I might write a foreword for her book. Noripah always dives completely into her subject with a genuine enthusiasm. And this book reflects the good work that she has done the past few years in helping to pioneer the growing field of Islamic asset management.
Noripah makes a compelling analytical case for why Islamic investing is something that all investors should consider; it offers equity returns that have outperformed conventional equity returns in recent years and with less volatility. In the case of Sukuk (fixed income), it offers an interesting alternative to traditional fixed income. So, the case for Islamic investing encompasses much more than simply wanting to reflect a faith-based or a socially responsible method for investing.
Given my role as a CEO of a U.S. financial services company (Principal Financial Group), I’ll leave it to the readers to judge the credibility of Noripah’s analytical arguments for why Islamic investing makes sense (although the data seems hard to ignore). My comments offer some observations on the overall development of Islamic finance, how Islamic asset management fits into that development, and thus why any investor (retail or institutional) will want to consider this as an additional option for investing alongside traditional asset management investing.
Islamic finance has been around for about 30 years and has shown impressive growth in that period of time. If you research the history of finance or watch the development of finance within a certain market or geographic area, you see that banking always develops first, because banking is the fundamental building block that allows for economic growth. And I think it’s fair to say that Islamic banking has had such successful growth over the past 30 years that there can be little doubt that is now becoming an established and accepted part of our world financial system.
As that part of the financial industry developed, we then saw corollary businesses develop—Noripah touches on the development of the Takaful (insurance) industry. The Sukuk (fixed income) industry began to develop as well over the past 20 years, and it is now an important part of Islamic finance as the capital markets begin to develop more robustly in the Islamic world.
Asset management is really the last piece in the Islamic financial puzzle—and given the success and growth of the earlier chapters of Islamic finance, the growth of Islamic asset management seems virtually assured.
It is also worth mentioning the significant changes in the asset management infrastructure that have enabled the Islamic asset management industry to have a platform on which to grow going forward. First, we’ve seen the appropriate screening mechanisms develop within the equity side of the business. We have a critical mass of Shariah scholars with sufficient expertise to make decisions on which companies are appropriate for Islamic equity investing. Then we have the capital markets within important countries (Malaysia, Singapore, the United Kingdom, etc.) create the necessary regulatory structures to allow local investors to gain access to Islamic products. A very important development for the growth of the Islamic asset management industry has been the ability to access Islamic asset management products through a Undertakings for Collective Investment in Transferable Securities (UCITS) structure. This allows a substantially wider set of investors to access these products in a cost-effective manner and with much greater choice of currencies.
So, the approach necessary to gain Shariah approval of the investment products is in place, and the regulatory environment for approving and overseeing Islamic products is well developed in the markets that are important for larger institutional investors. If all of that is not enough to convince you that Islamic asset management is a growth business and a growth opportunity, Noripah notes that many large well-established asset management firms are moving into the Islamic asset management space, along with many smaller but more focused Islamic asset managers. It will be interesting to see how large pools of money such as endowments, which often have socially responsible mandates, view Islamic asset management versus traditional asset management with an Socially Responsible Investing (SRI) overlay. If the outperformance that Noripah demonstrates continues at or near the same level into the future, I believe that they will be forced to take a much more serious look at Islamic asset management products. It is also my personal experience that the younger generations (such as Gen X and Gen Y) place a much higher priority on socially responsible principles in all of their decisions—likely including their investment decisions as they move into the workplace and begin the process of accumulating assets for their own retirement.
I want to close by congratulating Noripah and her colleagues at CIMB-Principal Islamic Asset Management for their work in being one of the pioneers in the Islamic asset management field. I am personally quite convinced of the future growth of Islamic asset management products—but that growth will not come without hard work and dedication from those in the field. As a final comment, I hope that we will see the development of a much wider community of asset management professionals trained in Islamic asset management coming out of the leading colleges and universities in the years ahead. As someone who spends part of his time working on higher education issues (in my role as Chair of the Board of Trustees at Drake University), I would like to encourage colleges and universities all over the world to consider the future of Islamic asset management and the need to train a future generation of asset management professionals in this new discipline.
Congratulations, Noripah, for your work and dedication to this new industry, and thanks for taking the time to educate all of us through this groundbreaking book.
LARRY ZIMPLEMAN
Chairman, President, and Chief Executive Officer
(Principal Financial Group, USA)