Islamic Business & Finance sits down with Arnaud Leclercq, Limited Partner at Lombard Odier Group about the launch of a certified Shari’ah-compliant mandate aimed at GCC individual investors.
Lombard Odier has launched of a full suite of Shari’ah-compliant investment solutions, the first in its 222-year history. The exclusive discretionary mandate has been officially certified as Shari’ah compliant by the eminent Shari’ah Supervisory Board of Amanie Advisors, who issued a Fatwa in February.
“As an independently owned, family bank with a long-standing legacy, the new offering follows a tradition of social responsibility including a focus on developing sustainable and responsible investment solutions. With the goal of preserving the assets and values of clients at its core, the Shari’ah offering builds upon Lombard Odier’s legacy of 50 years in the Middle East,” said a statement from the bank.
Arnaud Leclercq, Limited Partner at Lombard Odier Group, came to Dubai for the launch, coinciding with the Holy Month of Ramadan. Leclercq stated that the while the offering began as a bespoke creation for one client six years ago, it has grown from a $10 million to in the hundreds of millions, primarily for investors in the Middle East. Lombard Odier’s Islamic investments have averaged four to five per cent returns since 2012. The investments are a mix between Sukuk and equities. Equities are chosen using a combination of MSCI’s Islamic Index and Lombard Odier’s inhouse experts and economists who cherry-pick stocks according to their overall investment strategies, Leclercq told IB&F. The goal is to reach $1 billion in total Islamic investment the next three to five years, Leclercq said.
The clients that are currently being serviced with these solutions are primarily from the UAE, Saudi Arabia, and Kuwait, IB&F was told. Lombard Odier plans to increase its presence in the Middle East alongside the growth of its Shari’ah-compliant investment solutions, with an office in Abu Dhabi for the coming year currently in the planning stages, and a partnership with a Saudi firm currently in the works, Leclercq told IB&F.
“Given Lombard Odier’s history in the region, the Shari’ah-compliant offerings display our commitment to growth in the UAE, which is among the strongest markets for Islamic finance. As Islamic finance continues to gain momentum exponentially, the link between Shari’ah-compliant investments and the promotion of social responsibility becomes increasingly clear. We find this to be the case especially in the UAE, where the strong emphasis on philanthropy, innovation and sustainability leading up to Vision 2021 fosters the growth of Islamic finance,” said Christophe Lalandre, Managing Director at Lombard Odier’s Representative Office in Dubai.
Lombard Odier has had a presence in the Middle East for 50 years, has a representative office in Dubai, and manages roughly $280 billion in assets. The move follows Lombard Odier’s announcement that it will be offering Shari’ah-compliant investment solutions, with a specific aim at customers in the UAE, Saudi Arabia, and the GCC region. Read our exclusive conversation with Arnaud Leclercq for the full story behind Lombard Odier’s Shari’ah-compliant offering below:
Did you have to alter the offering to get the Fatwa issued?
First, our approach, based on the demand of one client specifically and then a few others, was to cherry-pick some Shari’ah-compliant products. It was easy to select Sukuk, but we also had to select equities. We chose the MSCI Islamic Index methodology, which is, according to our analysis, more stringent than a few others. That’s why we selected this methodology. Then we said, that’s not enough—we need to have some thematic funds as well.
We put in strong analysis and work, because there are many Islamic funds, but they don’t always have the quality of research and investment methodology. It’s not just about picking an Islamic fund—it’s about picking something that’s quality that will deliver performance to the clients. We selected the Saudi-based SEDCO Capital funds, which were also Shari’ah compliant, and were, according to our analysis, some of the best in specific thematics. Some other clients are open to Islamic structured products. A few banks do make Shari’ah-compliant structured products, though not all clients accept them, but we have to offer it. We selected the banks who do the best in this regard.
If you take all these blocks of investments, each of them has its own methodology to be Shari’ah compliant. That was what we offered in 2012, which was ok for our clients as each product was compliant. The mandate itself, had to be made compliant—the structure, methodology, and our name attached to it. That is why we have been through all of that. We have worked with our board of scholars to reach this result and say that the whole product is compliant. That is why they were ready to give us a fatwa to say that the portfolio was compliant. It was really from A to Z. Everything, from marketing tools, to the product itself, to the methodology has to be perfect.
What’s your strategy in selecting those equities?
We use our research teams. That’s what we do. We have $280 billion assets in management. We apply the same criteria to these Islamic products. These criteria start with our team of economists, who determine the trends in the world, in currencies, by markets, by regions, and by sectors. We have a very strong team in Switzerland, New York and London, who decide, for example, whether we should overweight emerging markets, underweight the euro, etc. From that, we derive from all of our investment strategy where to invest. What we do now is we have additional layers. All our strategy of asset allocation is done by Lombard Odier, and in addition to that, we add an additional filter of Islamic investment.
Do you see that growth mainly coming from new clients or existing clients? Would you like to add conventional investors to the Islamic space?
The first step is ultra-high-net-worth individuals and family offices are aware that this solution exists and how it’s unique. I met with a client in Abu Dhabi who was largely a conventional investor who, when I told him about the offering, he said, “Interesting. I also have some of my wealth in Islamic investments, but it is not really managed—it is just some Sukuk, rather than proper asset allocation. This would be interesting if I could do both.”
That’s just one example. It could be a new share of wallet from existing clients and new clients as well. There are clients that know the brand Lombard Odier, are eager to bank with us, and don’t know that we have this Islamic offering, and now they can. There are also charities and family offices who are interested, and these are new segments that we haven’t worked with. Usually we worked with families and longstanding UNHWIs who we built solutions for. But having tested the waters with the subject before announcing too much, people are really intrigued that Lombard Odier is doing this, and have said things such as, ‘you have a Fatwa? Wow. That’s serious! Let’s talk.’ That’s the first reaction we have gotten.
How have your Islamic investments performed compared to your conventional investments?
It’s very difficult to say as it is essential bespoke today. Some clients ask for 20 per cent Sukuk, and others ask for 70 per cent Sukuk. Sukuk have essentially underperformed the last two years, and last year we made 18.4 per cent on our Shari’ah-compliant equities. There is not an absolute performance, and that’s the beauty of it—we assemble these for the clients to the client’s demand.
As you’ve had six years to observe how clients are behaving in their Islamic investments, have you seen clients moving more assets from Sukuk into the equities?
I don’t think it’s a trend. I think people expect a certain performance, and they know that having only Sukuk will not help them reach those expectations. That is why they are more openminded and want more equities in this regard. Every case is different. For one client, for example, who has a $70 million invested, and for him, performance is not important. He said that he wants positive performance, as long as I’ve achieved the 2.5 per cent Zakat—the preserve the capital and contribute as he should as a good Muslim. For others, they would like to be closer to five per cent. It depends.
Do your conventional investors look to Shari’ah-compliant investment as another way towards sustainable or ethical investment, which Lombard Odier is expressly committed towards?
Today, it’s usually Muslims going in this direction. Others go for similar principles of fairness and ethicality, but to be Shari’ah compliant, it’s not just about principles, it’s about process. It’s a regulation—you’re compliant or you’re not. For sustainable investment, it’s a philosophy. You want to have an impact, but it’s not the same legal process. In sustainable investment, there’s a broad choice, with many of the same beliefs and desire to do good.
What do you have planned in terms of Saudi partnership?
We have strong partnerships in Asia already with local banks in countries such as Thailand and Philippines. We just signed a deal with Mandiri, the largest bank in Indonesia. We are now exploring possibilities in the GCC, including in Saudi Arabia. It’s not done yet.
How close are you to signing a deal with a Saudi institution? Are you talking to many institutions? No, today we are talking with one party specifically. We hope that by the end of 2018 we will do it. They are great people, actually, and it’s such a pleasure to work with them. We have the same way of working, the same philosophy, and so far so good. They are a Saudi institution with presence elsewhere as well. The model we’ve applied in Asia is what we’re trying to apply in the region. In those deals, the assets of the clients remain in the country so it’s not about transferring assets to Switzerland. We bring international asset management to the local partner and it has to stay in the country. It’s a very unique model, very special, and very successful.
You don’t plan on marketing your Islamic offerings to clients in Southeast Asia?
Not yet, no. We’re a strong bank, but we cannot be everywhere. We have had questions about it from our parnets there, but we’ve told them, step by step. My focus now is on the GCC, as we have strong connections here. We want to make it work. I’d prefer to be sustainable rather than make a big noise everywhere at once.
You want to hit $1 billion assets managed in your Islamic investment. What’s the time frame for that?
In a few year’s time. There are very large assets available. There will for sure be interest in our franchise, and we know that already, but how much we represent, it’s difficult to assess. That’s the beauty and the difficulty—it’s new, and unique. We don’t know how much we can get because no one has done it, but it’s very well received.