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Shariah energy fund sees scope to reach $500 mln

The outlook for investments in the oil and gas industry remains healthy as demand growth from emerging economies is expected to recover, a co-manager of a shariah compliant oil and gas hedge fund said.


“There is constant demand for these finite resources from emerging economies like China and India, even though there is some downturn in the short term,” said Russell J. Lucas of US-based Lucas Capital Management, co-portfolio manager of Al Safi’s Lucas Energy Fund. “You have to eat, you have to drive, you need heat to keep your family warm, I believe those are the things that should be the core of a portfolio, especially in uncertain times.”

The Dubai oil and gas hedge fund could grow to $500 million, from its initial investment of $50 million in the next 18 months, he said. The fund is one of four seeded by the Dubai Multi Commodities Centre Authority with total investment of $200 million. Each fund must satisfy Islamic objectives of ethical and equitable investing while remaining a commercial proposition that can draw investors.

The funds will be administered by Cayman Island-based Al Safi, an independent trust, and access to the commodity hedge funds for Islamic investors will be available through a fund offered by Dubai Shariah Asset Management. “A lot of times with a hedge fund, you have capacity where you have too much money, where you stop taking clients and we guaranteed this fund at least $500 million, and that was back when we had a different financial climate,” Lucas said. “Despite the current financial climate, for us the capacity is $500 million for the first one-and-a-half years,” Lucas told Reuters on the sidelines of a press briefing.

Barclays Capital, the investment banking division of UK-based Barclays Bank will service the hedge funds and London-listed Shariah Capital will advise on shariah compliance. Dubai Shariah Asset Management is a partnership between DMCC and Shariah Capital. For many Islamic investors the world of hedge funds has been closed because many of them short -- borrow and sell a security on expectation of buying it back at a lower price in the future.

Shariah law prohibits investors from selling something they do not own. But Shariah Capital, with advice from shariah scholars, has come up with a method that allows a short trade to be replicated without the need to borrow a security. (Reuters)