Rye, N.Y.-based Gabelli Asset Management‘s alternatives arm will launch a Shariah-compliant hedge fund, Gabelli Shariah Merger-Arbitrage Fund, in March. As a Shariah-compliant fund, the vehicle will adhere to specific restrictions. It will, for example, not be permitted to invest in banks and insurance companies because charging interest on loans is curbed under Islamic law.
Frederick Scholz, president of Gabelli’s alts unit, said he will launch this portfolio to cater to the growing wealth in the Middle East market. While some Middle East institutions have invested in traditional hedge funds, this only constitutes a fraction of the market, explained Scholz. Additionally, many institutions, including Saudi Arabia’s National Commercial Bank and National Bank of Dubai, recently moved to stricter provisions and can now invest only in Shariah-compliant vehicles, he noted. Scholz said the new Shariah fund is a natural extension to his firm’s socially responsible funds, which cater to Western faith-based organizations. Neither permits investments in gambling and pornography, he noted.
To achieve Shariah compliance, Gabelli joined with New Canaan, Conn.-based Shariah Capital, which developed software that screens out non-compliant companies, for example ones that generate most of their revenue from pork, alcohol or gambling. Eric Meyer, president of Shariah Capital, said the firm built this search engine with the guidance from Islamic scholars.
Once the initial screening process is completed, Islamic scholars make the final decisions to determine if the fund’s investments are Shariah-compliant, said Meyer. Prior to founding the firm five years ago, Meyer managed MD Strategic, a long/short fund, from 1994 to 2000.
The fund requires a $1 million investment minimum. The management fee is 1% and performance fee is 20% with underlying managers’ fees. The prime broker is Barclays. Meyer said Shariah Capital will have its own additional layer of fees to be determined.