Eric Meyer is the newest figure in Islamic finance and one of the most unusual. A youthful 42-year-old Catholic New England fund manager turned hedge-fund manager, turned venture capitalist, turned Islamic finance opportunist, his attempt to launch a Shariah-compliant hedge fund is causing a big stir in a small pond.
Shariah-compliant hedge funds are a contradiction to many Muslims. Everything about them seems to violate core Islamic finance principles. Money has no intrinsic value in Islamic finance so securities have to represent real assets and trading them for anything other than their face value is highly questionable. So hedge funds, which use derivatives and leverage, and which short securities, would seem to be a no-no.
Meyer and his Shariah scholars claim to have developed mechanisms that will enable Shariah-compliant investors to move into one of the most cutting-edge areas of modern finance. It’s the Islamic financial engineering equivalent of building a bridge to the moon.
What attraction does Islamic finance hold for a successful venture capitalist who made his money in the dot com years by taking technology companies public and running a long-short equity fund? The self-proclaimed financial engineer with a passion for collecting old manuscripts and stock certificates from the robber baron age (he has one of the first known certificates John D Rockefeller and Standard Oil ever issued), likes a challenge.
“Work for me is a function of challenges and rewards,” says Meyer, as he shuffles through the deck of business cards he’d collected that afternoon at Euromoney’s seminar on Islamic finance. “I like to take on challenges that people say can’t be done and, historically, the first group to create a new valued product does quite well financially.”
A notable achievement
Whether the project will be financially rewarding remains to be seen but it has already proved challenging. Developing new products for a conservative market such as Islamic finance is a struggle even for the most established players, so Meyer’s success as a complete outsider in developing and winning approval for the product in just 18 months is quite an accomplishment “It has been exceptionally hard,” he says. “It’s hard to break out of the mould and convince people. But I think coming from way out of the left field was a good thing because I didn’t have some of the intimidation that others have.”
Setting up an Islamic hedge fund has also been a cultural experience for Meyer, who lives with his family of six in New Canaan, a suburban Connecticut town near New York. “It’s a real East meets West situation,” he says. “I’m a blond-haired, blue-eyed Catholic boy, and they are Shariah scholars. We learned a lot working together.”
Meyer recalls: “When we got into real sticky parts about the mechanisms we would have jokes and discussions about religion.” He adds: “There is only one woman named in the Quran and it isn’t one of Mohammed’s wives or daughters, it’s Mary. And do you know why? Because she’s the mother of Jesus. We’re not so different after all.”
In both the hedge-fund and Islamic-finance worlds reputation is all-important. Meyer and his partners ran a $60 million long-short equity hedge fund called MDStrategic between 1995 and 2000 that had an average annual rate of return of 33%. Meyer is also a managing partner at Meyer Duffy Ventures, a venture capital firm whose investments between 1995 and 2000 included Micromuse (Nasdaq MUSE), Predictive Systems (Nasdaq PRDS) and Riversoft Plc (LSE RSFT).
The Islamic credentials of the fund are supplied by Sheikh Nizam Yaquby, Sheikh Yusuf Talal Delorenzo, and Sheikh Dr Mohamed A Elgari, highly respected Shariah scholars whose approval will go a long way towards reassuring investors that the product is Shariah-compliant.
In a relatively short time Meyer appears to have achieved what many in Islamic finance thought impossible and that others have tried and failed. His whirlwind of activity has injected a welcome burst of energy and interest in an industry where innovation is needed.
