Islamic finance is a nexus between Asia Pacific and the Middle East for Pioneer Investments. Jack Lin tells Stefanie Eschenbacher about his plans to expand into both regions and a new sharia-compliant fund to be launched with a local partner.
Jack Lin’s job title – head of Asia Pacific, India and the Middle East – says a lot about how Pioneer Investments views its future in some of the world’s most vibrant regions.
Singapore-based Lin says his clients in Asia share a lot more with those in the Middle East than in Europe so Pioneer Investments has started grouping its activities in both regions together.
Even Asian countries are once again tightening their ties with historical trade partners in the Middle East.
China awarded Qatar a 30 billion renminbi ($4.9 billion) quota under the renminbi qualified foreign institutional investor programme in November, which will allow Qatar to invest renminbi raised offshore back into China.
Qatar became the first country in the Middle East to receive such a quota, although several European and Asian countries already have one.
Lin says clients in Asia, especially those on the institutional side, are more similar to their peers in the Middle East, in terms of outlooks and time horizons. In both regions, central banks, sovereign wealth funds and other institutional investors were only set up over the past two decades or so.
“These are younger organisations, whose asset bases are growing rapidly, unlike those in Europe,” he says, adding that it makes perfect sense for an asset manager to cover them with the same team. In the early stages of development, institutional investors tend to have similar needs and expectations on investments.
Pioneer Investments is in the process of launching its first ever sharia-compliant fund investing in European equities, in collaboration with a local partner in the Middle East.
Lin says once the sharia-compliant fund has gained a track record it could also be introduced into the Islamic countries of Asia.
Sharia being an interpretative law, there are some challenges when it comes to selling sharia-compliant investments across regions.
“There are different sharia certifications, it is not uniform, so we would have to be mindful of the details of what is sharia-compliant to the authorities in Malaysia versus those in the Middle East, but we do think there is enough commonality that it would be scalable with minor adjustments” Lin says. “We do see a future for sharia-compliant funds in Asia.”
Lin adds that there is also a good deal of commonality between the mandate of a sharia-compliant fund and an existing Pioneer Global Ecology Fund. “The restrictions are similar,” he says.
The Pioneer Global Ecology fund invests in companies producing environmentally friendly products or technologies, or those that contribute towards the development of a cleaner and healthier environment.
Lin says that the fund does not invest in companies operating in areas that are “generally believed to be socially unacceptable”, adding that sharia-compliant investment is a special form of customisation to meet clients’ needs. “We have that capability to build it, should there be demand in Asia,” Lin says. “The interaction between the Middle East and Asia is increasing, and it is increasing rapidly.”
Islamic finance is a nexus between the Middle East and Asia, with Malaysia already being a pioneer of Islamic finance.
Neighbouring Indonesia has the largest Muslim population in the world, and even Singapore has been trying to find its place in Islamic finance – although rival Hong Kong beat it to the first sovereign sukuk issuance.
“On the institutional level, we see a lot of commonalities between Asian and Middle Eastern investors, but we also see that developing on a retail level over time,” Lin says.
The two regions have had political and trade relations for centuries, and it was only over the last century that the Middle East was, as Lin puts it, “drawn more into the European orbit”. This has changed, especially over the last decade. Lin says there has been some rebalancing and nowadays there are a lot more Asians present in the Middle East.
“The euro-centricity is going to erode over time,” Lin says of Luxembourg and Ireland, where many funds sold in Asia are domiciled. Although Lin says European domiciles will still have their place, there will be other choices for Middle Eastern clients in Asia, such as Singapore.
Singapore is part of the Asean fund passport, which recently launched and now links Singapore with Malaysia, Indonesia and Thailand; it will also be included in the Asian Regional Fund Passport, a region-wide initiative led by Australia, New Zealand, Korea and Singapore.
He adds: “This is not going to happen over night, and the impact is not going to be felt immediately [but] the larger trend of Asian markets getting together and creating a common scheme is inevitable.”
Lin says it is becoming clearer that the needs of Asian clients, markets and regulators are not always consistent with those of European regulators and jurisdictions like Luxembourg and Dublin.
“As these discussions progress, we will see a critical mass being built up and Asian passporting will become reality,” he says. “Of course, this factors into our strategy.”
Pioneer Investments has also plans to apply for a quota under China’s qualified foreign institutional investor programme.
“Over time, the walls that separate China’s capital markets from those in the rest of the world will break down,” Lin says.
“As these walls come down, there will be more opportunities for global investors, such as Pioneer Investments.”
The asset manager already offers a range of fixed income funds, but Lin says he is working on expanding more on the equity side. It offers traditional equities covering the US and Europe, and Lin adds that the next focus will be on other regions, like Asia and Latin America.
Lin’s responsibility includes all major markets in Asia and the Middle East as well as those of Saudi Arabia and Israel.
The focus is largely on institutional investors like sovereign wealth funds, national banks and other national-level investment bodies.
Pioneer Investments was founded in 1982, and is headquartered in Boston, Massachusetts.
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