OASIS CRESCENT EQUITY FUND CELEBRATES 15 YEARS
BOLDNESS AND VISION WAS REQUIRED TO VENTURE INTO THE ISLAMIC FINANCIAL SERVICES INDUSTRY 15 YEARS AGO. ADAM EBRAHIM HAD BOTH AND PUT THEM INTO ACTION ON AUGUST 1ST 1998 WHEN OASIS, THE COMPANY HE HAD FOUNDED A MERE 14 MONTHS EARLIER, LAUNCHED ITS OASIS CR
I n an industry then still very much in its formative stage, Oasis Crescent Equity Fund became one of a handful of unit trusts across the world adhering to Islamic Shari’ah law. Reflecting how small the sector was, a study by Islamic fund research firm Failaka Advisors puts the number of Islamic funds in 1998 at only 20 worldwide. Their total assets under management were a mere US$2bn.
Oasis Crescent Equity Fund today boasts assets of well over R5bn and has been the foundation on which Oasis Group Holdings, as it later became, was to develop a range of Islamic wealth management products few competitors worldwide can match. Among over 200 Islamic asset management firms worldwide, Oasis today ranks among the top 20 based on assets under management, indicates the Islamic Funds & Investment Report, a 2011 study by Ernst & Young.
Ebrahim’s road to establishing Oasis was a lengthy one which provided him with invaluable insight into the world of finance and asset management.
It began in 1986 when as a recently qualified chartered accountant he moved from his home town, Cape Town to London. “I was working for a top global auditing firm and became closely involved with the UK’s ‘Big Bang’ sweeping financial deregulation as head of their implementation team,” says Ebrahim.
He went on another rapid learning curve during the 1987 equity market crash which brought to a dramatic end a bull run which had more than tripled the value of major equity markets in six years. “I learnt a lot from the crash,” says Ebrahim.
Despite his success in the UK, Ebrahim’s heart was still in SA. He returned in 1989 and joined one of SA’s largest asset management firms, becoming a partner by 1992 and taking responsibility for an estimated R4 billion of assets under management at the time.
Bigger things lay ahead for Ebrahim. “I wanted to do something entrepreneurial,” he says. The opportunity lay wide open in his own Muslim community.
“The Muslim community had no avenues through which to invest in accordance with Islamic values,” says Ebrahim. “They also needed a low volatility asset manager.”
Another objective was to make things as transparent as possible.” Globally financial services companies are notorious for making things opaque,” says Ebrahim. “Transparency enables sound decisions to be made.”
A tough road awaited Ebrahim but it was not one he travelled alone. With the full support of his three brothers and sister, Oasis opened its doors for business as an authorised financial services provider in June 1997.
Two of Ebrahim’s brothers remain closely involved with Oasis to this day. Mahomed Shahin Ebrahim serves as chairman and chief operating officer while Nazeem Ebrahim serves as Oasis’ deputy chairman. Sister Roshin-Ara Ebrahim is a non-executive director. Adam Ebrahim holds the positions of group CEO and chief investment officer.
Oasis initially operated as an institutional asset manager. To enter the retail market, the company needed a unit trust licence, requiring a three year track record and a minimum of R1bn in assets under management. “We had neither,” says Ebrahim.
Undeterred, Oasis Crescent Equity Fund was launched in August 1998 as a “white-label” product under the licence of Norwich Unit Trusts. “Oasis received its own licence in 1999 on our own track record,” says Ebrahim.
The company effectively started from a zero base. “It was a new industry and we had to hire and train our own people,” says Ebrahim. Oasis also developed its own internal systems, including administration, a function most asset management firms opt to outsource.
From the start Oasis also put its own people in client facing positions rather than relying only on third-party distribution. This, says Ebrahim, has played a key role in building the Oasis brand and strong ties with the Muslim community.
Strict adherence to Shari’ah law is vital in ensuring success of an Islamic asset management business. As the basis for adherence Ebrahim says Oasis chose the rules of the Organisation of Islamic Countries (OIC) which in 2002 formed the Islamic Financial Services Board (IFSB), an international standard-setting body of Islamic regulatory and supervisory agencies. Oasis is the first South African member of the Accounting and Auditing Institution for Islamic Financial Institutions (AAOIFI), the internationally accepted technical standard-setting body. Compliance with the guidelines of AAOIFI are a prerequisite to be classified as a Shari’ah compliant fund in South Africa under the rules of the Association of Savings and Investment South Africa (ASISA).
Also vital is a Shari’ah supervisory board which oversees appropriateness of investments. Here Oasis opted to go for the best from the start, says Ebrahim. “We chose three top scholars, one each from the Far East, Middle East and the West,” he says. “This has always held us in good stead.”
Shari’ah law lays down strict rules including prohibition of investment in sectors such as financial services, gambling, pork and non-Halal meat industries, tobacco and alcohol. A second layer of compliance relates to limits on the level of interest bearing debt, cash and near-cash on a company’s balance sheet and interest income earned by companies.
In SA, the two layers of compliance limit the investment universe to about 90 shares compared with 166 shares in the JSE all share index.
Payment or receipt of interest is also prohibited under Shari’ah law. “We strip out interest from our portfolios on a daily basis,” says Ebrahim. Interest is donated to the Oasis Crescent Fund Trust, a public benefit and non profit organisation which contributes towards social support, educational programs and humanitarian aid. Current major projects include the establishment of early childhood development centres across South Africa
Investment and income restrictions have not prevented Oasis from providing its clients with outstanding returns. Since its inception in 1998, Ebrahim says the Oasis Crescent Equity Fund has delivered an average annual return of 22.4% after fees compared with an annual average of 14.9% by its peer group.
“A R1m investment in the fund at its inception would be worth R20m today,” says Ebrahim. “If you allow for inflation it represents a real increase in wealth of nine times.”
It is an achievement that has not gone unnoticed and has earned the fund numerous international awards. The most recent was in 2012 when the fund was honoured at the annual Failaka Islamic Fund Awards in Abu Dhabi as the best SA Islamic equity fund in the 10 year category.
Among Oasis Crescent Equity Fund’s qualities and those of the other funds in Oasis’ line-up has, says Ebrahim, been an ability to achieve the goal of superior returns at below market risk.
One useful indicator is the Sharpe ratio which measures a fund’s returns in relation to risk as reflected in its price volatility. The higher the Sharpe ratio, the better a fund’s risk-adjusted performance has been.
Oasis Crescent Equity Fund has a Sharpe ratio of ratio of 0.9 compared with its peer group’s 0.3, says Ebrahim. It has done equally well on a similar, more sophisticated measure of risk-adjusted performance, the Sortino ratio with a score of 1.4 compared with its peer group’s 0.4 average.
Oasis Crescent Equity Fund was just the start for Oasis which has over the years expanded its product range systematically. Throughout the process Oasis has followed what Ebrahim terms a “building block” approach enabling the creation of a range of integrated products covering the full spectrum of wealth management.
Oasis’ second building block was put in place in December 2000 with the launch of the Oasis Crescent Global Equity Fund by its international partner. “After a lengthy assessment we decided to do our own offshore investment research,” says Ebrahim.
The decision paid off handsomely with the fund delivering an annual average return of 7.6% in US dollars since its launch. This compares with an industry average annual return of -0.2% over the same period.
In the domestic Shari’ah market the building process began in September 2001 with the launch of the rand-denominated Oasis Crescent International Feeder Fund Oasis which channels investments into the global funds of its international partner.
Rand-denominated funds added since 2001 have been an income fund, a worldwide flexible fund, an international equity feeder fund and three balanced fund-of-funds offering high, medium and low equity exposure.
“Three balanced funds enables us to offer clients life stage options,” says Ebrahim. “Up to the age of 50 you are building wealth and need a high equity fund. From 50 to 60 you are still building wealth but require the lower risk profile of a medium equity fund. Over 60 the objective is wealth preservation making a low equity fund ideal.”
The building process has taken Oasis’ total Islamic funds to 13, eight rand-denominated and five offshore funds of its international partner registered for local distribution. “We now have an SA and a global equity fund, an SA and global property fund and an SA and global income fund,” says Ebrahim. In the offshore balanced fund space Oasis has two funds, one with medium equity exposure and the other with low equity exposure.
Oasis has also built a parallel line up in the conventional unit trust arena where it now offers seven rand-denominated funds and three global funds of its partner.
The first conventional fund, the Oasis General Equity Fund, was launched in September 2001 and has been a performer in the Oasis mould. The fund’s average annual return of 19.9% since launch is well ahead of the SA domestic general equity sector average of 17.3%. The fund’s Sharpe ratio of 0.8 compares with a sector average of 0.6.
In SA, Oasis has complemented its Islamic unit trust offerings through four pre- and post-retirement funds. “We have put in place a retirement annuity fund for professionals and an umbrella pension fund for smaller companies,” says Ebrahim. For people who change jobs, two preservation funds are offered, he adds.
The most recent addition to Oasis’ domestic Islamic product line-up is the Oasis Crescent Endowment Policy. Sold through Oasis Crescent Insurance, it is available with maturities of five, 10 and 15 years. The product, says Ebrahim, will grow “significantly” over the next few years and completes Oasis’ product development cycle in SA.