KUALA LUMPUR (March 19): The assets under management (AUM) of public Islamic funds globally are expected to bounce back to the 2021 peak of about US$140 billion (RM661.15 billion) in the next two to three years, with Malaysia taking the lead to have the highest concentration of funds, according to Fitch Ratings.

In a report released on Monday, the rating agency forecast lower US interest rates of 4.75% in 2024 and 3.5% in 2025, which will likely increase appetite for investments in emerging markets, including Islamic funds.

However, it said macroeconomic fluctuations and geopolitics could bring volatilities.

Fitch global head of Islamic finance Bashar Al-Natoor said the fund management industry is still in the relatively early stages of development in the Gulf Cooperation Council (GCC), and underdeveloped in most Organisation of Islamic Cooperation (OIC) countries, with the exception of Malaysia.

He said Islamic funds are even at an earlier stage of development due to limited products, lack of economies of scale, differences in shariah interpretation, and shortages of human capital.

“Private Islamic funds are expected to be much larger than public funds, with real estate being one of the key asset types.

“However, there are less disclosures and transparency that would allow us to measure the industry size,” it said.

Fitch said public Islamic funds globally held over US$111 billion in AUM at end-2023, up 3% year-on-year.

It said these were concentrated in Malaysia (28.3%), Ireland (18.1%) and Saudi Arabia (17.2%).

However, Islamic funds, by count, were more granular, with Malaysia’s share at 36.8%, followed by Indonesia (16.9%), Pakistan (15.3%) and Saudi Arabia (12.8%).

The agency said this classification was based on the funds’ domiciled country and Lipper data, which may not capture all private funds.

Fitch said in the GCC countries, Islamic funds were close to 80% of total public funds at end-2023, supported by demand from shariah-sensitive investors, with the balance being conventional funds.

Islamic funds’ share also reached 49% in Pakistan, 33% in Malaysia, and 8% in Indonesia.

The largest public Islamic funds by AUM were equity funds (36.3%), money market funds (20.9%), and sukuk funds (10%).

A number of funds and indices exclude sukuk if they do not comply with Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) shariah standards.