Deutsche sees Islamic hedge fund growth in 2008

By John Irish

DUBAI (Reuters) - Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz) expects demand for hedge funds that comply with Muslim law to take off in the second half of 2008 as structures become more defined and credible fund managers and brokers set up to handle the products.

The move would be the latest attempt to marry huge demand for Islamic investments with the returns on hedge funds.

"There is demand for Islamic hedge funds, mainly from ultra high net worth individuals who already look at conventional hedge funds and would have a preference for Islamic," said Geert Bossuyt, managing director, regional head of Middle East structuring at Deutsche Bank.

International financial institutions, including Deutsche, are working on handling sharia-compliant hedge funds with the second half of the year and 2009 likely to see the industry begin to flourish, Bossuyt told the Reuters Islamic Finance Summit.

"I think we are almost there with some big names, and with reasonably big investment banks including Deutsche," he said, adding that the market was demanding products from established institutions rather than new players.

Barclays Capital (BARC.L: Quote, Profile, Research, Stock Buzz), with its U.S.-based partner Shariah Capital Inc (SCAP.L: Quote, Profile, Research, Stock Buzz), said in September it planned to launch Islamic hedge funds offering investors a group of hedge funds that would be managed according to Islamic law, or sharia -- rules that many bankers and investors say forbid common hedge fund strategies such as short-selling.

"You have to sort out the shorting issue," said Bossuyt. "You can't sell what you don't have in Islamic finance ... That's one of the ground rules."

Bossuyt said it could be achieved by creating a synthetic short position through selling derivative options such as in a salam contract.  Continued...