“Pakistan has had an epidemic of savings,” says Khaldoon Bin Latif, CEO of Faysal Asset Management Limited, a subsidiary of Faysal Bank Limited (FBL) that holds 99.99 per cent of its shares. “Our savings ratio is 9pc of GDP, which is very low compared to any other emerging market. And this number is the biggest source of Pakistan falling behind its competitors.

“Fundamentally, we have penalised savers over the last 40 years. Our fixed income returns have been negative for the last several decades because of which anyone who saved did not make any real returns.”

But this is changing. Praising the regulatory environment and the central bank, Mr Latif points out that the industry was at best Rs200-300 billion a decade ago but is now at Rs1.3 trillion. As products are created that provide real returns, they induce the general populace to save instead of consume.

In particular, the Islamic space is an asset-starved market. “We need to create assets that are Sharia-compliant from the inception stage. Eventually, the exit strategy would be through the equity market and the debt profile would be Sharia-compliant so that as we grow, we don’t run out of assets to invest.”

Faysal Funds plans to develop a Sharia-compliant market of primary assets that will allow for its long-term growth

In 2018, before FBL brought out other shareholders and changed the management, Faysal Fund assets under management were about Rs7.3bn. Since then, they have increased over 12 times to Rs92-93bn. How? The strategy was simple: follow competitors’ successes and avoid their failures.

“Product distribution is optimised according to the economic realities of Pakistan. What works well in a high-interest environment does not work well in a low-interest market, and vice versa. So we made sure we were distributing the right category through the right market,” he explains. This allowed Faysal Funds to grow from a market share of 1.3pc to 7pc in the short span of 3.5 years.

While learning from deep dives into competitors’ journeys has served them well in the past, it is time for Faysal Funds to forge its own path under the banner of FBL’s Sharia compliance.

Deposits and assets under management have grown faster than opportunities creating hurdles for competitors, Mr Latif observes, which is why Faysal Funds is entering the venture capital and private equity space as well as real estate investment trusts (REIT).

Real estate is the single largest asset class for our savings. “If I look at my parents, most of their household savings are in real estate. We want to bring this market, this saving opportunity, to our investor base,” he expounds. “As an asset manager, I feel we lack counter-cyclical products that can balance out the boom and bust cycles all economies operate in.”

However, Faysal Funds is at a very early stage of REITs, having recently gotten a licence. The legal environment is challenging, Mr Latif says, hence the Fund is moving slowly while internally identifying new projects.

Within private equity, the valuations were very steep a year back but are becoming attractive again, so Faysal Fund is in the negotiation stage, he adds. But since the licence was obtained as recently as a month back, Faysal Funds is still in the raising of capital mode.

The plan is to make a fund that high-networth individuals and corporates will invest in, allowing Faysal Funds to acquire and develop a privately-held asset and eventually exit through the market. “That company has to be Sharia-compliant when we partner up with them. So we are not just launching a private equity fund, we are launching a Sharia-compliant private equity fund in the next three to six months,” Mr Latif emphasises.

“The bank is providing Rs3bn of seed capital to us. The fund size will be anywhere between Rs3-10bn, a wide range that is a function of the transactions and opportunities the team identifies. Faysal Funds will start raising capital once this opportunity is identified.”

Typically the gestation period is five to seven years which is the term sheet of the fund. This is still shorter than global private equity funds that are created. While initially, this new fund will have a few big investors, Faysal Funds intends to use it to build a track record for a wide-based fund in the future.

For the time being, Faysal Fund is also looking at the exchange-traded fund (ETF) space. An ETF is a bundle of assets that can be traded on the Pakistan Stock Exchange. “ETFs have a lot of global traction, which we want to develop. We have opted for a traditional fixed-income ETF that will be launched before the end of this calendar year because there is a lot more liquidity in the market. Once we have learnt from it, our focus will be to launch a Sharia-compliant ETF,” says Mr Latif.

Published in Dawn, The Business and Finance Weekly, November 14th, 2022