First Islamic Hedge Fund Gets Green Light, Although Obstacles To Growth Remain

by Phillip Morton, Investors Offshore.com

27 September 2004

The launching of the first hedge fund compliant with Islamic law has been given the go ahead by regulators, lawyers and Islamic scholars, Reuters has reported.

For many in the global finance industry, this represents the first of many such funds and signifies the enormous untapped potential of the Islamic market. However, it would appear that there remain significant hurdles to overcome before this potentially rich seam of dormant assets can be mined.

"It's been extraordinarily challenging and frustrating and very costly," Eric Meyer, a Connecticut-based fund manager and founder of the fund, told a Euromoney conference in Kuala Lumpur last week.

It has taken Meyer three years and $2 million to get the fund off the ground.

Gaining approval for a fund compliant with Sharia’h law certainly does not look easy. First, the fund must meet the approval of Islamic scholars with their varying interpretations of this law, which forbids taking of interest income and investments in 'unethical' firms.

Then there are also a host of other obstacles to be overcome, including poor liquidity, shortage of experts in the banking and legal fields, not to mention uncertainty surrounding taxation and hostile political attitudes to Islamic finance in certain countries.

However, according to Meyer, the rewards for unlocking the Islamic market are potentially enormous, estimating that some $300 billion is waiting to be tapped from this market.

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