Shariah compliancy needs transparency
There are complaints that investors are being misled by funds.
"The history of Shariah compliancy in finance is littered with bad stories. Up until fairly recently, a lot of initiatives were done to win business, or to tap into unaware investors and play on their feelings of trying to be good Muslims"
Muslims that want to make Shariah-compliant investments have had few opportunities to put their money with hedge funds. Hedge funds will go short, invest in debt and invest in sectors that are not Shariah-compliant, such as gambling. They need that flexibility to create alpha. But with growing wealth among Muslim investors, an increasing number of hedge funds claim to be offering Shariah-compliant products. The legitimacy of their claims, however, is open to debate. All too often, Muslim investors’ money is put to work with non-Shariah-compliant managers but by wrapping several funds’ returns into a new product via a total-return swap, and having a well-paid board of scholars approve the structure, firms can claim to have produced a Shariah-compliant fund.