News.com recently spoke to Crescent Wealth’s Managing Director about all things Islamic investing, the benefits to members without compromising on their values. As well the growth opportunities & challenges.
An ancient rule that appears in the Bible, Torah and Koran is at the heart of a Muslim super fund’s $2.5b pitch to Aussies.
The head of the country’s first Islamic superannuation fund wants to use the scandals exposed by the banking royal commission to sell the value of “sharia-compliant” investing to mainstream Australians.
Crescent Wealth managing director Talal Yassine OAM said in three-and-a-half years his fund had gone from $1 million under management to $250 million and was now “set up for explosive growth” to a projected $2.5 billion within five years.
Around 10 per cent of Crescent Wealth’s 7000 members are not from the Muslim community, and Mr Yassine said he would “like to get that to 50-50” as he pitches the benefits to customers in the wider ethical investment “family”.
“What we don’t invest in are things that harm humanity,” he said. “Tobacco, weapons, pornography, alcohol, insurance companies and banks. People used to ask me, ‘Why insurance companies and banks? That sounds weird.’ Now I don’t get that anymore after the royal commission.”
Unlike “green” ethical funds, Crescent Wealth is the “only fund that doesn’t invest in banking and insurance companies as a matter of policy”.
Along with things like pork and alcohol, sharia law prohibits “usury”, or the charging of interest. Mr Yassine said the ancient prohibition, which is also contained in the Bible and the Torah, was all the more relevant today.
There are around 650,000 Australians who identify as Muslim, according to the 2016 Census. Mr Yassine estimates his fund has 1 per cent market share of working Muslims and expects to double that in 2019.
“But we want to take it much broader and let Australians know we would like to contribute to the social fabric, as millennials and others, especially with the royal commission, get a sense of what happens when banks (commit usury),” he said.
“The Koran has a prohibition against it for the same reason the Bible and the Torah do, it’s making money from money. The Islamic community believes that your money itself should not be making money with you not doing anything and not having any risk.”
Many of the scandals highlighted in the royal commission came down to banks “lending money to people who can’t afford it”. “It’s no risk to the bank, the entire risk is on the borrower,” he said.
Islamic finance, by contrast, involves the lender “partnering” with the borrower “more like a joint venture”. “Someone comes to me and says, ‘I want to buy something for $10, I’ve got $1 you need to lend me $9’,” Mr Yassine said.
“I say OK, as a bank I will own 90 per cent of that house and you’ll own 10 per cent, you’ll pay me rent and buy it back from me over time. If (it’s a business and it) fails, the bank loses its equity. Therefore as a bank I’m going to take a lot more interest in the risk being taken.”
Crescent Wealth, which describes its investment style as “responsible, long term, low risk and medium return”, has a second set of four “quantitative filters” once a potential investment makes it through the Islamic “quality filter”.
First, it has to be lowly geared, with less that 33.3 per cent debt. Second, it can’t have more than 70 per cent of accounts receivable owing. The third rule is it can’t have more than 30 per cent liquid capital on the balance sheet.
“For two reasons,” Mr Yassine said. “We don’t like hoarders, you’ve got to spend in the economy. The second is we don’t like vulture capital, saving up money and waiting until everything goes down.”
The fourth rule is the “materiality test”. If an invested company earns a small amount of revenue from “prohibited goods” — under around 5 per cent — Crescent Wealth will calculate that percentage and donate the corresponding return to a registered charity.
“About $50,000 goes to charity, it’s not a material amount,” he said. “We apply those rules to every investment. It’s a global standard, it’s not a standard we made up.”
Crescent Wealth instead focuses on “socially responsible investing in healthcare, property and infrastructure, utilities, manufacturing and innovative industries”.
Its property fund has returned an average of 14.9 per cent per annum over the past five years, while its Australian equity fund “is doing quite well over five years” but Mr Yassine concedes “it could have done better”.
Morningstar ranks Crescent Wealth’s property fund second in its category but its conservative, balanced and growth funds rank at or near the bottom of theirs. “On a super fund level we’re at least in the top quartile,” Mr Yassine said.
It comes as former Liberal leader and economist John Hewson joins the Crescent Wealth board, where he will sit alongside banker Nicholas Whitlam and former Macquarie University vice chancellor Diane Yerbury.
The fund has also signed up NAB Asset Servicing as custodian, Mercer as its super fund administrator, Equity Trustees as super fund trustee, Malaysia’s CIMB Principal as its cash manager and London-based bfinance as its investment adviser.
Mr Hewson said he had been interested in Islamic finance for “quite some time” and saw potential for Australia to become a regional centre as Muslims in Asia look to “broaden their investment base”.
“There’s a lot of money that comes in from the Middle East, Brunei, Malaysia, Indonesia, but it’s not sort of efficiently channelled through anything really,” he said. “They’re looking at life beyond petroleum, they’re planning and investing. Australia is a natural place, politically stable, pretty well developed financial centre.”
The former Macquarie Bank director said the timing was “impeccable” given the revelations of the royal commission and the “lack of faith and trust in banks”. “One of the defining characteristics of Islamic finance is its transparency and honesty,” he said.
“I think you’ll find quite a lot of interest from people who have lost interest in our banks and traditional financial institutions. Its appeal is not just to the Islamic community but more broadly to the non-Islamic community looking for a reliable alternative.”
Mr Hewson said he would use his decades of experience in funds management to help Crescent Wealth “develop their business”.
“It’s hard to pre-specify what you actually do,” he said. “A source of general financial and strategic advice is probably the principal role on the board, but you deal with issues as they come up.”
Mr Yassine said simply being one of the only sharia-compliant super funds wasn’t enough to automatically attract working Muslims. “If that was the case I’d be in a very good financial position,” he said.
“It’d be an Islamic monopoly. We don’t say, ‘You’re a Muslim, you ought to do this.’ That’s not the pitch at all. We go to the community based on five things. The first is performance, second performance, third performance. The fourth is cost. The fifth is service.”
But are Muslims invested in non-sharia-compliant super funds doing the wrong thing? “Technically, yes, they may be doing the wrong thing,” Mr Yassine said. “But technically I don’t pray five times a day every day.”
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Talal currently serves as a Non-Executive Director on the Whitlam Institute and Western Sydney University Foundation Council Board. He also serves as Chairman of First Quay Capital and Chairman of the Australian Arab Dialogue. Talal has also served on the Australia Post, Board of Sydney Ports, Macquarie University and the Western Sydney Area Health Service and the Chairman of the Department of Foreign Affairs and Trade; Council of Australia Arab Relations. In an executive capacity, Talal spent 10 years at PwC as a director and strategist, and at investment firm Babcock & Brown in the Corporate Finance Group and later in the Technical Real Estate Division. Later Talal held leadership positions in Better Place Australia, Platinum Hearing and Star Transport Australia.