The $1.3 trillion global hedge fund industry will develop a viable $50 billion Islamic niche market in the next three years, according to Re...

The $1.3 trillion global hedge fund industry will develop a viable $50 billion Islamic niche market in the next three years, according to Reuters.

At present wealthy Muslim investors in the Gulf Arab region and Asia frown on hedge funds as they often involve short selling, and in the process paying interest to brokers, which conflicts with Islamic Shariah law

However several fund managers have been trying to develop Shariah-compliant strategies that will emulate the strong returns of hedge funds and tap some of the estimated $750 billion in Islamic assets presently allocated to equity-and property-related funds.

Amiri, a UK-based Islamic investment manager, with a partner in Bahrain, is launching a global long-short equity hedge fund in 2007 that is Shariah-compliant.

However, the short-selling will be done by a broker using its own capital rather than that of the fund. A profit sharing arrangement will allow investors in the fund to benefit from the strategy.

“The alternative investments market is negligible now. We do not believe this will be the case 12 months from now. There is a large latent demand for Islamic products. The gap is on the product side,” said Richard Ellis, co-chief executive of Amiri Capital.