Abdulkader Thomas began with a question for Samer Merhi on the size of the Islamic wealth management market. Samer said there is a debate on whether the amount is US$700 billion or US$500 billion. However, the question is whether it has peaked.

David Rutledge said Islamic wealth management is currently at an interesting phase with a strong move toward product development. He said the Dubai Multi Commodities Centre (DMCC) was in the process of taking to market a series of Shariah compliant equity-based long/short hedge funds using the Barclays Capital Safi platform. He also said Islamic investors should receive returns comparable to those available in conventional finance. DMCC has structured a Shariah compliant exchange traded fund which will be listed shortly on the Dubai International Financial Exchange.

Responding to Abdulkader’s question on how to reduce taxation for Islamic investors, Jennifer Chang said structuring an investment is important to ensure that it does not incur the taxation cost and translate into lower returns for investors. For most of the investments made in the region, fund managers will actually have funds in an offshore location or in a low-tax jurisdiction such as Labuan, British Virgin Islands and Cayman Islands which have good tax regimes.

Abdulkader then asked Serdar Basara what makes investors turn to Japan, which is considered a high-tax investment environment, and how does the country attract Islamic investors to its shores. According to Serdar, most foreigners in cross-border transactions had established entities outside of Japan in countries like Singapore and they also managed their funds outside Japan; otherwise they would have to pay a high tax rate.

To a question whether some of these transactions are being executed by DMCC or if the exchange can facilitate them in its commodities, Rutledge said one of the business units at DMCC, the commodities and currency future and options exchange, is currently not structured in a Shariah compliant manner. DMCC does not see that sort of transaction on its market at present but it may happen in the future.

Abdulkader asked Serdar what was interesting for investors that might take them to Japan. According to Serdar, there are five types of major investment opportunities for Islamic investors — the stock market because of the liquidity and its high volatility and its correlation with the stock market in New York. Secondly, real estate is expected to be a good investment opportunity after January 2009, both residential and commercial. Thirdly, there is asset securitization where investors can securitize the asset or real estate and have denominated assets. Investors can also invest in private equities.

Abdulkader then sought the panel’s view on the potential of Islamic exchange-traded funds (ETFs) which are currently penetrating the market. Rutledge said there is great potential for commodity based ETFs because some of them use the futures market to gain price exposure to commodity markets. Serdar said the Tokyo Stock Exchange wants more ETFs to be listed on the exchange and the market is ready for such investors.

As for Abdulkader’s question on the next major product in the marketplace, Samer said investors are looking at real estate and infrastructure projects. Infrastructure projects, which are mostly linked to governments, have low risk.

Serdar said Islamic wealth managers should target Japanese investors for their products abroad while Chang noted property is one of the investment classes that Islamic investors seemed to be interested in as well as infrastructure, agriculture and plantation.

Rutledge said an important part of the total investment space is commodities but it has not been available to Islamic investors in the past. Recently, there has been enormous price appreciation in the commodity market and is possibly in the midst of correction. There is no doubt that for the long term, commodities will be an important and interesting part of the investment space. Many new investment products that are Shariah compliant may be based on commodities.