How PE Sponsors Can Tailor Traditional PE Funds for Shari’a-Compliant Investors

Private fund managers have long believed that it is impossible to raise money from investors that adhere to the principles of Shari’a – typically located in the Middle East and Southeast Asia – without operating a fully Shari’a-compliant fund. The problem is that various attendant burdens associated with operating those funds – including the need to appoint a Shari’a supervisory board – frequently discourage PE sponsors from pursuing that approach. As a result, PE sponsors are failing to access a huge potential market whose assets are expected to exceed $3.5 trillion by 2021. To ease this tension, a new approach has been developed to allow Shari’a-observant investors to invest in conventional PE fund structures that are subject to certain navigable restrictions. In a guest article, K&L Gates partner Barry B. Cosgrave describes this new fund structure, provides real-life examples of how it has been used and explains how it applies to the PE industry going forward. For more on fundraising in the Middle East, see “Ways Fund Managers Can Adjust to Rapidly Changing Regulatory Frameworks in the Middle East and Europe” (Jul. 13, 2017); and “K&L Gates Partners Offer Practical Guidance for Fund Managers on Raising Capital in Australia, the Middle East and Asia” (Oct. 30, 2014).

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