Al Safi Heading Into Private Equity

LONDON (Reuters) – Dubai-sponsored Islamic hedge fund platform Al Safi is planning a foray into private equity by the end of this year, the scholar sanctioning its Islamic compliance said on Wednesday.

Yusuf Talal DeLorenzo, chief sharia officer at U.S. fund manager Shariah Capital, said the Al Safi platform could also offer up to five long/short equity hedge funds.

That is in addition to the existing four designed to help Islamic investors diversify their portfolios, manage risk and protect capital.

“We are in discussions with private equity managers,” DeLorenzo said at the Reuters Islamic Banking and Finance Summit Summit.

Al Safi was set up last year by Barclays Capital, a unit of Barclays Plc (BARC.L), following a $250 million commitment by the Multi Commodities Centre (DMCC), part of the Dubai government’s investment arm.

DeLorenzo said the DMCC had decided to limit its investment to $200 million, deploying $50 million in four commodity-oriented hedge fund strategies.

DeLorenzo is responsible for making sure the platform complies with Islamic laws, which forbids leverage and focuses on sectors such as real estate, healthcare, technology, telecoms and utilities, DeLorenzo said.

“We are desperately in need of more ways and means to manage risk,” he said. “One of the most sophisticated tools is the hedge fund, unfortunately it has developed a bad name because a handful of highly speculative hedge funds have captured all the headlines.”

Typically hedge funds are registered in lightly regulated offshore centres such as the Cayman Islands, but most managers operate from major centres such as New York and London.

They are seen as risky because they can use derivatives, borrow to make bigger investments and sell short — a bet that the price of a security will fall.

Shariah law does not allow short selling. But the platform uses instruments that allow the practice without breaking Islamic investment laws.

By Pratima Desai and Cecilia Valente

(Editing by David Holmes)