Saudi asset manager blends Shariah and ethical in new strategy
Sedco Capital, one of the largest asset managers in Saudi Arabia, has launched a new investment strategy for international investors, that integrates its Shariah-compliant investment approach with ethical investing.
The Luxembourg-domiciled strategy, dubbed Prudent Ethical Investing (PEI), stresses the importance of due diligence and transparency around investment structures, processes and reporting while also integrating the analysis of environmental, social and governance criteria in the investment process, the company said in a statement announcing the launch.
The strategy also seeks to avoid high financial risk and aims to enhance long-term risk-adjusted returns. It is one of 14 that Sedco Capital offers as part of its Sharia-compliant investment strategies, domiciled in its US$1.8bn Luxembourg offering.
Hasan al Jabri, chief executive of Sedco Capital, said: “We have pioneered a prudent ethical investment approach that ensures we invest in companies that have strong governance, clear structures, and a prudent level of leverage. In short, while we target strong returns and performance, we ensure that our investments benefit society, comply with Shariah and ESG investment principles, while avoiding excessive leverage and non-transparent investment structures.”
The PEI approach has been formulated since 2013, recently oversaw the publication of a a Sedco Capital white paper, entitled, ‘How can Responsible Investors Benefit from Islamic Criteria?’, which looked at the performance of responsible investments, Islamic investments and unconstrained portfolios across the US, Europe and Asian equity markets.
The research showed that Shariah-compliant portfolios have outperformed unconstrained and responsible investment strategies over the last decade on an absolute return and risk-adjusted basis across all analysed markets, Sedco Capital said.
Christian Gueckel, chief risk officer at Sedco Capital and author of the white paper, said: “Our analysis has shown that sector exclusions and balance sheet constraints cause a distinct return profile for Islamic portfolios. The lower financial leverage and better cash conversion result in a bias to quality and growth which adds a prudence element to Islamic portfolios.
“Our results show clearly that responsible and unrestricted investors would have performed better using Islamic criteria.”
Sedco Capital was the first Saudi asset manager and the first fully sharia compliant asset manager to become a signatory of the United Nations Principles of Responsible Investing (UNPRI), an initiative started by former UN Secretary General Kofi Annan. This principle-based framework called for the incorporation of environmental, social and governance variables when analysing risk for any investment.