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As reported here in January, New Zealand's first (and probably last) KiwiSaver scheme based on Islamic Shari'ah investment principles has been approved for business.

In addition to the Amanah KiwiSaver Plan's obvious unique selling point, the scheme's just updated prospectus reveals it has few other non-factory components under its bonnet.

The scheme currently has only one underlying fund - the Amanah Growth Fund - that invests solely into the Amanah New Zealand unit trust. Despite its name, the Amanah NZ fund itself invests only in US-listed stocks, with a maximum 50 companies in the portfolio but it can also hold up to 100 per cent cash. This closely resembles the investment strategy of the Goldman Henry US 50 fund, whose managing director, Brian Henry, also heads up Amanah.

Due to the Islamic restrictions, however, Amanah won't be hedging the currency, leaving investors to shoulder this risk themselves.


As well as Brian Henry, key Amanah people include: Claude Oberto, who previously worked with the Financial Markets Authority to devise new regulations for financial advisers; Gregory Fortuin - former NZ Race Relations Commissioner and director on various company boards, and; Palmerston North-based academic, Dr Faruk Balli, who provides Islamic advice to the scheme.

The Amanah scheme has also signed up a new technology firm, the Kiwi Registry Company - headed by Richard Schipper - to handle some of the crucial back-office admin tasks.

Aside from introducing a new sub-heading into the ever-growing list of risks investors should consider - "Religious Risk" - the Amanah prospectus includes the only reference I've ever seen to "purification" in a financial document.

Given the difficulties of completely avoiding non Shari'ah investment activities (eg earning interest, which the IRD automatically pays on member money held prior to handing on to schemes), Amanah will calculate a "purification payment" for exiting members who want to abide "strictly" by the Islamic code. However, it will be up to the member to pay the Amanah-advised purification amount - perhaps by way of donation to an approved charity.

Combating religious risk doesn't come free with Shari'ah compliance adding 25 basis points to the Amanah scheme costs, which add up to a baseline total of about 1.5 per cent plus another fixed annual member admin fee of $32 or so.

But it's Amanah's completely irreligious performance fee that is particularly interesting.

The scheme will take 15 per cent of all investment earnings above the benchmark up to a maximum of 3 per cent of the total funds under management. The benchmark has been set at 8 per cent based on the US dollar-denominated returns. According to the Amanah prospectus, the scheme can't impose a performance fee based on any currency gains but there's no mention of not charging investors if they conversely suffer below-benchmark performance in NZ dollar terms.

After five years' return history, Amanah will then set its own performance fee benchmark based on the five-year "annual average growth of the fund".

This is truly a scheme for believers.