Biggest Gulf hedge fund launch for 5 years eyes ethical bets

The fund will invest using the principles of Sharia, although trades will not be signed off by a cleric.

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The co-founder of privately-owned Kuwaiti oil firm Zahra Group is set to launch a new $100 million global equities hedge fund targeting ethical investments, the biggest Gulf launch for five years.

The fund will invest using the principles of Sharia, although trades will not be signed off by a cleric.

“The few [Sharia-compliant] funds that exist are mostly real-estate focused and returns are usually in single digits ... When investors see the prospect of double-digit returns, their eyes light up,” Husain Kothari said.

Kothari said he hoped his fund, Kothari Investment Partners, would appeal to a broader investment base, including ethical investors in Europe.

“They [ethical investors in the region] feel that they leave a lot of money on the table, as there just aren’t avenues available to invest,” he added.

Kothari, ex-chief financial officer of Kuwait Energy, said the fund was talking to wealthy regional individuals and family offices, and was likely to pass an original target of $50 million and hit $100 million ahead of a summer launch.

While global hedge fund assets are around $3 trillion, those based in the Middle East manage just $5 billion, data from Eurekahedge showed.

There have been no launches from the region so far this year, it said, and the last to do so with $100 million was in 2010.

Data from Preqin showed the biggest Gulf fund was the UAE-based Arqaam Value Fund, with nearly $350 million in assets, followed by Bahrain-based GIB Emerging Markets Opportunities Fund, with $340 million as of February.

“Ethical value investing is not very common. Talking to investors regularly, there’s a lot of demand for it. It’s kind of missing, a bit, in the market,” a London-based investment consultant said.

Kothari would target around 20 ‘value’, or undervalued, investments from a pool of several hundred with, among other traits, a proven history of compounding shareholder wealth and durable competitive advantages and predictable cashflows.

Examples of firms that would qualify include Danish chemicals firm Novozymes and German lubricants company Fuchs PetroLub, the presentation documents showed.

All would need to avoid tobacco, alcohol, gambling and pornography. The fund would also avoid some financial firms and those with excess debt, Kothari said.