OIC TODAY Enquires and The Expert Explains

DR Hasnita Hashim brings 25 years of global financial management experience from the US, the UK, Saudi Arabia, and other Gulf countries, Malaysia, Brunei and Indonesia at the management committee and CEO levels. She has recently established the head office of Guidance Investment in Malaysia, which has around US$1 billion and its focus is on Islamic investment management. Dr Hasnita responded to our enquiries about the outlook of Guidance Investment.

Q: Could you please brief our readers about the history and development of Guidance Investments, as the investment management and capital markets arm of Guidance Financial Group?

Capital Guidance created Guidance Financial Group in 2000 as a wholly-owned subsidiary initially to enter the Islamic Financial Services field. Guidance Investments is the investment management and capital markets arm of Guidance Financial Group responsible for creating and managing a broad range of investment products that meet the needs of institutional investors. Guidance specialises in high quality, alternative investment solutions in three major asset classes: private equity, real estate, and fixed income. We apply considerable product development and structuring expertise to create solutions across the investment risk/reward spectrum, with fixed income typically offering lowest risk and lowest return and private equity typically offering highest risk and return. We have developed relationships with a critical mass of more than 200 institutional investors, most of whom face a dire shortage of suitable Shariah-compliant investment products in our targeted asset classes.

Guidance Investments functions in four capacities with respect to its activities:

As a general partner/investment manager in creating and managing alternative investments under the Guidance brand. As an advisor and partner to conventional fund managers in creating and structuring Shariah-compliant funds that parallel their existing funds; attracting institutional capital for these funds; and assuring funds’ continued adherence to Shariah principles. As an advisor and arranger of sukuk issuances for GCC corporates seeking to access debt capital markets. As an independent Shariah advisor to third-party funds

Q: Having the motto ‘Shaping a Future for Finance’, Guidance Investments focuses its work on providing investment solutions in three (3) major asset classes: Private Equity, Real Estate and Fixed Income. What are the objectives of each venture?

Guidance Investment’s expertise, creativity, flexibility and strategic global partnerships allow us to construct different financial structures for our investment products in each asset class to meet precise client investment objectives.

Private equity:

Private Equity is one of Guidance’s major asset classes and can provide investors with high risk adjusted returns. However, the leverage, investment structure or investee business activities of many funds and investments make them incompatible with Shariah principles. In addition, astute manager selection is essential to achieve good results. Guidance seeks out and works with the highest-quality, leading international fund sponsors to create and structure investment programs that are Shariah-compliant and suitable for our institutional investor clients.

" We see significant opportunities to meet the underserved demand for Shariah-compliant investment products from institutional investors.Guidance has developed relationships with more than 200 institutional investors. "
Dr Hasnita Hashim

Real estate:

Additionally, we are also heavily involved in real estate. Guidance’s parent, Capital Guidance, has accumulated more than 30 years of experience and expertise in the real estate sector. This encompasses over US$5 billion of investments in 110 properties in North America, the MENA region and Asia, ranging from office towers, single and multiple family residences to retail, industrial, medical, and mixed-use properties. Capital Guidance established four operating companies, of which Madison Marquette is the primary current vehicle. Madison Marquette specialises in urban retail and mixed-use investments in gateway cities. Their extensive experience, learning and judgment influence our approach to the origination of new real estate investment solutions. Guidance Financial Group has created two operating real estate funds with strategic partners.

Fixed income:

Regarding the fixed income asset class, we are primarily set on achieving a desired asset allocation target in fixed income investments without exposure to interest-bearing securities. Guidance creates different types of fixed income assets as a solution to this structural problem: Shariah-compliant equipment leases through our leasing initiatives; corporate sukuk securities through our Capital Markets operations; and Shariah-compliant mortgages though our housing finance operations.

Q: Real estate is believed to be one of the most sustainable and highly profitable businesses. How does Guidance Investments plan to use this opportunity, and what potential does the Real Estate Fund segment have?

At Guidance, we have been active in real estate for more than 30 years. We leverage our extensive expertise in the real estate sector, which has been built in the course of making more than US$5 billion of investments in 110 properties in North America, the MENA region, and Asia. We are currently in a position where we are ambitiously striving towards building a global real estate platform. In late 2013, we announced our plan to raise RM2.5 billion focused on the logistics and warehousing sector. We believe there is an outstanding opportunity for establishing a Southeast Asia industrial and retail real estate investment program (REIT) primarily focused on offering Shariah compliant investment opportunities in logistics, industrial and warehouse-retail properties in Malaysia, Indonesia, Singapore and Thailand. Indeed, the region shows strong economic growth, favourable demographics, rapidly rising consumption and industrialization, and an increasing demand for industrial and logistics facilities.

We have engaged in intensive research and development to develop such a program and will provide investors with a current yield and an ability to share in the growth of these dynamic economies. In line with the establishment of this program, we have recently hired a new Managing Director, Pius Ho, who will be in charge of leading and implementing it across the Southeast Asian region. Pius served in senior roles at real estate investment firms, specifically targeting Asian property markets and brings with him 25 years of international experience managing a variety of real estate portfolios for institutions and private investors globally. In addition, we are exploring opportunities to create similar real estate investment opportunities in developed markets, including the United States and the United Kingdom.

Q: Being globally known as a pioneer and innovator in Islamic finance, what strategies does Dr Hasnita draw to expand the reach and effectiveness of Guidance Investments through the avenue of Islamic Finance, which is in increasing demand?

According to the IMF, Islamic finance assets currently represent less than 1% of global financial assets. The Islamic finance market is still at a relatively nascent stage, but has seen exponential growth over the past 3-4 years. The global crisis faced by conventional finance and the enhanced understanding of Islamic finance’s social and ethical aspects has led to the sector increasingly being viewed as a credible alternative to conventional finance. We are seeing that Islamic finance is becoming a more globalised industry by expanding beyond its core markets of the GCC and Malaysia. For example, sukuk are attracting interest not only from traditional issuers, but also from non-traditional issuers in areas such as North Africa, sub-Saharan Africa, Europe and countries such as Russia, who seek to diversify their investor base. Countries as far afield as the UK, South Africa and Luxembourg have tapped, or are seeking to tap, the market. This trend for greater globalisation is likely to continue in the future. The industry has also taken major strides to achieve a broader consensus on Islamic banking structures, which is a major factor that will support its global growth.

One of the factors that will drive demand for greater sophistication and innovation is the positive demographics of the global Muslim population, which will reach 26 per cent of the total global population by 2020, and of which over 60 per cent are under the age of 30. There is a significant Muslim population around the world that is still underserved, and we believe that offering them a range of financial products specifically equipped for their needs will significantly impact the continued growth of the Islamic financial market worldwide. We also see significant opportunities to meet the underserved demand for Shariah-compliant investment products from institutional investors. Guidance has developed relationships with more than 200 institutional investors. We are also developing Islamic banking initiatives that feature a broad suite of consumer and corporate financial services in countries that are underserved for these types of products.

Q: Considering the increasing power of Southeast Asia’s economy, which is expected to change the outlook of the global economy in the near future, how can Guidance Investments contribute to, and benefit from, this growth?

According to the latest economic outlook for Southeast Asia, emerging Asia is set for healthy and consistent growth over the medium term. Growth momentum remains robust in the ten ASEAN countries, with economic growth averaging 5.6% over 2015-19. The type of growth Southeast Asia is experiencing provides a number of opportunities for Guidance as companies are looking for sources of funding and vehicles to invest in. So what this means is as these economies continue to grow and develop, all of our business lines increase in relevance and impact. This also provides an opportunity for us to deepen our level of service to the undeserved population in Southeast Asia. As mentioned above, an example of this is the REIT program in the Southeast Asian region which will allow us to capitalise on this growth, and involve all our major lines of business to participate in and benefit from this economic progress.

" We are exploring opportunities to create similar real estate investment opportunities in developed markets including the United State and the United Kingdom."
Dr Hasnita Hashim

Q: Based on your long experience with renowned financial institutions in the West and the Middle East region, what do you think can be done to bridge the gap in collaboration between both parties? What role does Guidance Investments play to accomplish this?

In terms of bridging the gap in collaboration between the West and the Middle East region, our strategy is two-pronged. We are firstly reliant on making our products acceptable to all markets, and subsequently, creating cross-funding opportunities on the back of these products.

When we set up our Shariah board, we wanted it to be at the level where if they issue an opinion, we can appeal to the majority of Muslims whether they are in Malaysia, GCC or the U.S. We have several well-recognised and forwardthinking scholars from the U.S., Pakistan, Malaysia, Saudi Arabia, Syria and Bahrain in order to promote innovative and well-rounded contributions to our business processes. As an example of cross-funding operations, we are already a major force in Shariah-compliant mortgages in the United States. Currently, Guidance Residential is the largest provider of Sharia-compliant home financing in the United States to the more than 2 million U.S. Muslims and holds an 80% share of this segment of the U.S. mortgage market. Additionally, convergence between the Southeast Asian and GCC regions, the two largest markets, is critical to the growth and globalisation of Islamic finance. Over the past few years there have been increasing cross-border transactions between GCC and Southeast Asian Islamic finance markets. An example of this is the growing sukuk issuances by GCC companies in Malaysian ringgit. Guidance has been a key player in promoting cross-border financial flows between the two regions, through a range of innovative Islamic financial instruments.

Malaysia can serve as a template in developing the large sukuk market, and involving domestic rating agencies. Malaysia sponsored and pushed for their growth, an effort that the UAE and Saudi Arabia could potentially do in order to encourage their local market development.