x Abu Dhabi, UAESaturday 20 January 2018

Wahed Invest: a Sharia-compliant investment robo-adviser 

Former Wall Street banker, Junaid Wahedna, brings the latest money-management to the masses

A UAE Investor at the stock exchange in the Dubai Financial Market.  Ali Haider/EPA
A UAE Investor at the stock exchange in the Dubai Financial Market. Ali Haider/EPA

Investment advisors used to be the preserve of the well-off. If you had a few hundred thousand dollars, you’d have a series of meetings with wealth managers in fancy suits, who’d charge you an exorbitant fee to help you put your money in the right place.

Those days are now (thankfully) largely in the past, as advances in technology have opened up investment advice to the masses. A new class of robo-advisers, led by companies like Betterment and Wealthfront, can provide sound investment advice for a fraction of the cost of their human counterparts, making it affordable enough for those with as little as US$100 to invest.

Junaid Wahedna has now taken the robo-investment concept a step further, making it available for those looking for Sharia-compliant investment options.

The lack of availability of Islamic investment options for non-high net worth Muslim investors troubled Mr Wahedna. Seeing an opportunity, he quit his job on Wall Street, and after a few long and tiring years, opened one of the world’s first sharia-compliant robo-advisers.

Wahed Invest, the New York-headquartered digitally automated investment adviser, charges far lower fees than those charged by a conventional wealth manager, enabling people with limited savings to build a sophisticated sharia-compliant investment portfolio.

“I asked myself how do we solve this problem, as 99 per cent of the Muslim population perhaps is not rich, how do they invest their money?” Mr Wahedna tells The National.

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“The products that were out there, even for the high net worth [individuals] they were very expensive and inefficient. And only because they were Halal, institutions were charging a premium [for them]. We said there shouldn’t be a cost for being a Muslim. There shouldn’t be a cost for investing ethically, so went ahead and built the venture on that basis.”

Mr Wahedna, from India, grew up in Dubai, going to school and university in the emirate. He went on to get his masters degree in industrial engineering and operations research from Columbia University in New York. After graduating he joined boutique merchant bank M Capital Group, where he had interned during his studies.

“It was a good stepping stone to show you what it is like competing in the most mature financial market in the world, the best quality of work, the quality of structured products, which was all invaluable,” he says of his stint at Wall Street. “Getting that exposure and confidence was helpful.”

His year at the bank helped him recognise that the Islamic finance sector was perhaps decades behind the conventional finance world in terms of its product offerings. As a practising Muslim from a religious family, his interest in Islamic finance came naturally. He soon concluded that the smarter use of technology was the way forward for Sharia-compliant investing.

Particularly eye-catching was the rise of robo-advisers, which gauge investors’ investment goals and risk appetites via online questionnaires, and subsequently offer advice at a fraction of the price of traditional wealth managers. Betterment, one of the best known of the new generation of robo-advisors, has accrued over $10 billion worth of assets under management in the US since its launch in 2008.

According to an AT-Kearney 2015 report, global assets under management by robo-advisors could rise by 68 per cent annually to $2.2 trillion by 2020, with the sector set to transform the investment management business and wider banking industry.

After saying goodbye to his job in Wall Street, Mr Wahedna took a leap of faith and started building his own robo-adviser, focused on Sharia-compliant investments, investing $50,000 worth of his savings in the project. He was alone in generating the idea, and started the process of getting a licence from the Securities and Exchange Commission (SEC) in the US on a “very, very tight budget”, he says.

“When I took the big leap, I told myself I can make a product that really is for the community,” he says. “From the idea stage to a workable prototype, it took more than a year. It was full time work. No sleep, and that hard work wasn’t paying anything at that stage.”

“It was barebones and I had no one to do the work for me. I had to call the SEC, and I had to call the stock brokers [in order to] understand everything including regulations.”

But as soon as the structure was ready and everything was put on paper, his luck changed. Three angel investors came on board to help develop the technology and compliance aspect of the project.

These investors - Laurent Nordin, a former director at Mckinsey, Nasr-Eddine Benaissa a financial services veteran who is currently the chief investment officer at Mawarid Investments, and Khalid Al Jassim, an experienced investment banker who is now a managing partner at Dubai-based Afkar Holdings – all sit on Wahed Invest's board today.

“I set up and registered with SEC in 2015 with no money, nothing but an idea and paperwork. Then the angel investors came in in 2016 and gave me about $1 million saying, ‘Do it professionally.’ In the first quarter of 2017 we went out and got $5m,” Mr Wahedna recalls.

The company became such a “hot product” that investors started approaching Wahed to be part of the story.

“We had people coming to us; we needed only $4m but we ended up raising $6m to $7m because we had so many good strategic investors. We got Cue Ball Capital from the US and Beco [Capital] from the UAE,” he adds.

Being Sharia-compliant, Mr Wahedna says, Wahed has something that others in the segment can’t offer. There are two billion Muslims across the globe and the potential of growth is unbelievable.

The growth Wahed has so far achieved is impressive in its own right. The platform, which went live in the US in mid-2017, signed up 1,000 wealth management clients in its first three months. Its total membership has now grown to a “few thousand,” says Mr Wahedna, without divulging the exact number.

Currently, all of Wahed’s clients are from the US and Mr Wahedna says it plans to start accepting international customers, possibly, within this year.

“The sky is the limit”, he says of the company’s prospects. “Imagine how many Muslims there are outside of US and prospect of that is what is exciting everyone.”

“We can accept clients from 150 countries infrastructure wise, but we don’t want to open the floodgates. We want to do it properly,” he says. “We want to make sure we understand the consumer and we want to make sure our product is perfect for the market and then we will go with the big bang.”

The company has 50 full-time employees and it has offices in New York, London, Dubai and Mumbai.

It is currently focusing on Middle East and North African markets through its Dubai hub. Looking forward, the company sees a lot of potential in India, having seen strong demand for Islamic investing in the country from its pre-registered clients.

Wahed is still evaluating options in the country, with no firm entry plans at the moment. Nigeria, home to the world’s fifth-largest Muslim population, is also on the company’s radar in the longer term.

The company owes it success, Mr Wahedna says, to a great team of highly qualified professionals.

“We have some incredibly talented people. It is like best of the best coming together ….. it is nice to have all that talent together for an Islamic finance platform. All of these guys have joined us because the genuinely believe in what they are doing and what we [as Wahed] are doing.”

Amir Farha, the co-founder and managing partner at Beco Capital, agrees.

“What we like about [the company] is that the product is very good, the team is very good and given the fact that they are Sharia-compliant - a white space not addressed by the robo-advisers,” he says.

The fact that Wahed has the potential to be a global institution is an added appeal for the venture capital firm. “Robo-advisory will remain [the key] pillar but Wahed can essentially build itself into an Islamic bank over time, he notes.

“It’s really worth funding and supporting and it has the potential of changing the global landscape,” he says, adding the Beco Capital will be happy to participate in the next funding round of Wahed as and when it happens.