SOVEREIGN wealth funds (SWFs) may have had a limited exposure to the Islamic finance sector to date, but the launch of a new Islamic investment firm, Fajr Capital Ltd. in early October 2009, brings together the investments and ambitions of three such funds in one stroke.

Khazanah Nasional Berhad (the investment arm of the Ministry of Finance in Malaysia), the Brunei Investment Agency (BIA) and the Abu Dhabi Investment Council (ADIC) have been joined by the private Saudi-based firm MASIC (The Mohammad & Abdullah Al-Subeaei Investment Co.), which is a member of the Al-Subeaei Group, as the main shareholders of Fajr Capital, which is based in the Dubai International Financial Centre (DIFC) and has offices in London and Kuala Lumpur.

According to Fajr Capital, the firm will focus on financial services and complementary opportunities in the broader economy in key Muslim markets. To achieve its short-term aims, Fajr Capital is armed with a pool of initial funding of about $600 million and says that it has access to further capital.

The launch of Fajr capital also sees the resurfacing in the Islamic finance space of Iqbal Khan, its inaugural chief executive who was formerly the CEO of HSBC Amanah. Other senior management executives include some of Khan’s erstwhile colleagues at HSBC Amanah, others who were with him at Citigroup and the Islamic Investment Company of the Gulf (IICG) Bahrain, and others still from strong backgrounds in financial services from top international and regional institutions. Between them they have amassed a vast experience in structuring and marketing Islamic financial services products.

The firm’s management and shareholders believe that Fajr Capital represents a “compelling and timely proposition” in the current economic environment. “The global financial crisis has highlighted the need for an ethical and community-based approach to investment. The Islamic financial services industry is strategically positioned to fulfill this need in our target markets. We see these markets as our home, and wish to work with local partners and indigenous management to grow our portfolio companies and to increase the overall market share for Islamic financial services,” explained Khan in a statement. Given the pedigree of the shareholders, it is not surprising that the board of directors of Fajr Capital comprise very senior officials bridging the Middle East, Europe and Asia.

Fajr Capital says that it “intends to be an active and enabling investor in its portfolio companies, helping to optimize performance through best-in-class products, service standards, technologies and Shariah expertise.” The firm has appointed a group of independent Shariah advisories, and adds that it intends to act as a responsible investor, and is deeply committed to the development of the communities it serves. Fajr Capital stresses that its shareholder profile offers further sources of competitive advantage: Regional connectivity, cross-market insights, and co-investment opportunities. For instance, Nasser Al-Subeaei and Abdulaziz Al-Subeaei have played a key role in the establishment of several Islamic financial institutions in the region, including Bank Al-Bilad and Jadwa Investment in Saudi Arabia, in which MASIC has equity stakes, and now Fajr Capital.

Needless to say, having shareholders with an array of interests can be a boon or a drawback. The Islamic finance market in Fajr Capital’s core target areas — Saudi Arabia and other GCC countries, Southeast Asia and Turkey — is already very competitive with institutions with much larger balance sheets than Fajr Capital. Similarly, shareholder connectivity may lead to some business opportunities, but it may also lead to situations of potential conflict of interest.

It will be interesting to see how Fajr Capital maps out its future strategy. If Iqbal Khan has anything to do with it, it will mean structuring new products and perhaps a new approach of Shariah-based as opposed to Shariah-compliant financial solutions.