The scholars also advise other funds, such as Kuala Lumpur-based Asia Islamic Investment Management. But when a fund is unable to comply with the Shariah board’s advice, or its returns are unavoidably sourced from a non-compliant activity, they must “purify” the gains by giving “tainted” profits or income to an approved charity, El Hassan writes. Most purification ratios – of clean versus dirty money – usually stand at 20:1. The big challenge for Australian managers aiming to set up a Shariahcompliant vehicle is finding local Shariah board members and professionals to provide services to Shariah funds, El Hassan writes.

“In the meantime, relying on institutions and Shariah Board members in offshore jurisdictions is one way of overcoming these challenges in the short-term.” Another option would be to set up “Shariah windows”, which enable investors to buy Shariah-compliant assets, such as sukuks, which are similar to bonds. But these holdings must be held separately to non-compliant assets. LM’s Shariah-compliant offering has attracted much interest but no commitments from offshore investors to date, Francene Mulder, an executive director at the firm, said.

But some encouraging progress for LM was the ousting of Al Hilal Bank, Allianz Global Investors, Maybank Islamic, Mashreq and others to win the ‘best new product’ at the 12th Islamic Business and Finance awards in Dubai last year. LM was the only Australian manager nominated in the contest. The manager is based on the Gold Coast, but has offices in Sydney, Hong Kong, Auckland, London, Dubai, Tokyo and Johannesburg. Speaking at the awards ceremony, chief executive Peter Drake said the manager had the attention of “several investment banks, wholesale, private and retail banks across the Middle East, including Saudi Arabia, Jordan, Bahrain, UAE and Kuwait”.