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KembaraXtra–Islamic Finance–Islamic Capital Market-
Fund of Funds
A fund of funds (FoF) is an investment approach where investors place their money into one structured fund, and that fund then invests in multiple private equity funds or portfolios of companies, instead of investing directly into a single company.
Example:
An Islamic pension fund invests in a Shari’ah-compliant fund of funds. That FoF then allocates capital across Islamic private equity funds in Malaysia, Saudi Arabia, and the UK, covering technology, healthcare, and manufacturing sectors. This spreads risk while ensuring Shari’ah compliance at every level.
Simple summary:
👉 A fund of funds offers diversification, professional management, and reduced risk, but requires strong Shari’ah governance because investors do not invest directly in the underlying companies.
Fund of Funds
A fund of funds (FoF) is an investment approach where investors place their money into one structured fund, and that fund then invests in multiple private equity funds or portfolios of companies, instead of investing directly into a single company.
- Provides better risk diversification compared to direct investment, because money is spread across many funds and companies
- Reduces concentration risk, as exposure is diversified by sector, geography, investment stage, and strategy
- Requires strong governance and oversight to ensure all underlying funds and investments remain Shari’ah-compliant
- Needs a clear Shari’ah policy framework, especially because investors are one step removed from the actual companies
- Fund manager must carefully select and monitor underlying funds, typically focusing on those expected to perform in the top 25% of their category
- Selection is often guided by a fund of funds advisor, who evaluates performance, risk, management quality, and Shari’ah compliance
- Can be structured as:
- Multi-investor FoF: many investors pool funds together
- Single-investor FoF: designed for one large institutional or high-net-worth investor
Example:
An Islamic pension fund invests in a Shari’ah-compliant fund of funds. That FoF then allocates capital across Islamic private equity funds in Malaysia, Saudi Arabia, and the UK, covering technology, healthcare, and manufacturing sectors. This spreads risk while ensuring Shari’ah compliance at every level.
Simple summary:
👉 A fund of funds offers diversification, professional management, and reduced risk, but requires strong Shari’ah governance because investors do not invest directly in the underlying companies.
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