Salaam Gateway spoke with Omar Bassal, CFA, Founder and Chief Investment Officer of Shukr Investments, about impact investing – the ability to generate financial return while having a positive social or environmental impact.
Founded in 2013, Sharia-compliant Shukr Investments is a global private equity firm with operations in the United States and Abu Dhabi; has tens of millions of dollars under management and is a signatory to the United Nations (UN) Principles for Responsible Investment. According to Bloomberg, Shukr Global Equity Fund’s performance over three- and five-year periods ranks among the top 10% of offshore public equity funds as of the end of February 2022.
Salaam Gateway (SG): What were the highs and lows of Shukr Investments in 2021?
Omar Bassal: We recorded the strongest growth in assets under management last year – an undeniable peak. The socks ? Markets have been challenging and we have seen significant dispersion in returns. When you have events like COVID-19 or (the) Russia (Ukrainian conflict), stocks go everywhere – more opportunities to make money. When all is calm, stocks are highly correlated and there is not as much scope for differentiation.
Last year (we oscillated) between these different regimes… and we only generated 3-4% net positive (whereas we typically aim for a minimum of 10%). However, for investors who have been with us since inception, our annualized return is approximately 18% net of fees and expenses. Our best year was 2020 with a net return of 136% or 170% gross.
SG: Where does your growth come from?
Bassal: We opened the Abu Dhabi office to be close to Middle Eastern institutions and in the belief that it will attract investors from Saudi Arabia, United Arab Emirates (UAE), Qatar and Kuwait. Currently, investor growth is happening in the United States and we hope that will change.
SG: Are high returns on investment and social impact mutually exclusive?
Bassal: The conventional view is that you will underperform if you have an environmental, social and governance (ESG) or social impact mindset. You only invest in specific types of businesses and exclude other opportunities. Therefore, the theory says that your return will be lower…it’s not true.
The shukr in Shukr Investments comes from the Quran chapter Abraham (number 14) verse 7. The English translation is that if you show gratitude (shukr), God will undoubtedly cause an increase. There is a relationship between gratitude and increase.
We believe Shukr’s impact components, such as the ESG investment philosophy and charitable giving, demonstrate gratitude. We can do good and generate high returns if we show gratitude. If you look at our three-year performance, Shukr’s annualized fund returns were 41% versus 16% for the index – and better than 99% of funds in our category. The main thing – you don’t have to sacrifice return to do good.
SG: What makes Shukr different in the world of sharia-compliant investing?
Bassal: The Islamic investment industry largely achieves Shariah compliance by applying negative filters when investing and purifying some of the capital or earnings from impure sources. (They) take a universe and remove alcohol, tobacco and gambling and apply screens of financial ratios. We felt that the screen-negative approach is not the whole story. There is a religious principle that calls for appreciating good and forbidding evil.
Within this framework, most of the Sharia-compliant industry prohibits only evil without focusing on the good. We think ESG investing is good because you favor companies that do good in terms of environmental stewardship; social contract with employees, suppliers and customers and their corporate governance. This is why Shukr has integrated ESG investing. We also “enjoin good” by donating 50% of our performance fees to charity, allocated by our clients.
SG: What are your goals for 2022?
Bassal: To grow and deliver top performance – no one cares about the brand mission if we generate bad feedback. Likewise, if we stay at our current level, despite performing excellently, no one will care either. My focus has been on asset growth because we are not on the radar screen of many investors, sharia or otherwise.
SG: How does Shukr apply ESG principles in its investment selection?
Bassal: We work with the Swiss company RepRisk to assess the companies we consider. What I like about RepRisk is the way they look at ESG investing – they look at what a company does rather than what it says. RepRisk reviews tens of thousands of posts in 23 languages daily, using artificial intelligence (AI) tools to flag, categorize and track a company’s coverage over time.
SG: What is your competitive advantage?
Bassal: Our strategy – one that we believe can drive top performance and (have) social impact achieved through charitable contributions (consistent with recognition) of the relationship between giving back to society and our performance. We demonstrate this by succeeding, because then people will wonder what Shukr does differently. Realizing the value we bring by giving back, our success can encourage other businesses to adopt a social impact component. This is how you make a change – because people like to copy in the business world.
SG: How do you distribute the donations?
Bassal: This year, for the first time, we are giving customers a choice. Investors split the donations among a set of pre-selected charities, ensuring that the total equals 100%. (US-based charity) Charity Navigator helps us identify (deserving) organizations…it’s an independent source for rating charities, looking at size, impact and amount allocated to donations vs. administrative expenses.
The charities we donate to are grouped under five causes – poverty, education, health, environment and wellbeing – many of which are linked to the United Nations Sustainable Development Goals (SDGs). Likewise, many of the charities selected are not Islamic organizations – we need to have a positive impact on society, not just Muslims. We are meant to be a role model for everyone.
SG: Which sectors do you consider to be the most advanced in the ESG field?
Bassal: The most important factor is not the industry, but the country. By having separate company reports disclosing their impact, Europe is the most advanced region in applying ESG standards. The United States is quite far behind, but is catching up. (It) is more diversity-focused, reporting on issues such as gender and racial inclusion.
Emerging markets are complicated. The most advanced companies may have an ESG page, but most emerging markets are far from reaching the levels of Europe or the United States.
SG: What opportunities do you see for Islamic finance in the near future?
Bassal: Being commodity-driven, Southeast Asia and the Middle East strongly influence the Islamic finance industry, although innovative fintech companies are emerging from Europe and the United States. We have a positive view of commodities for the foreseeable future and believe that these regions will see significant cash inflows which will (boost) the Islamic finance sector.
Investors in this industry are still predominantly Muslims who share a common value system. However, in discussions with non-Muslim investors, we found agreement on our approach. Strip the ‘Islamic’ label from our work and I think significant segments will want to invest and give back to society as we practice it.
Therefore, if we can generate returns as good or better than most investors receive, they will migrate to Shukr’s model simply because they care, not only about how they grow their wealth, but also the impact of this growth on the world.
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