Shariah Compliant Structuring
Expanding your addressable market by accommodating Islamic investors through parallel feeders or side-cars.
Core Principles
Shariah compliance fundamentally requires the avoidance of Riba (usury/interest), Gharar (excessive uncertainty), and Haram (prohibited) industries (e.g., alcohol, gambling, conventional financial services, pork).
Structural Approaches
- Whole Fund Compliance: The entire Master Fund operates under Shariah principles. Common for regional managers, rare for global GPs.
- Parallel Feeder: A specific feeder vehicle is established for Islamic investors. This feeder must be structurally isolated from conventional debt facilities (like standard capital call lines) and must employ Islamic financing (e.g., Murabaha or Wakala facilities).
- Excused Investor / Side Letter: For venture capital, where the underlying assets (tech startups) are generally compliant, LPs may simply require side letter provisions excusing them from specific non-compliant follow-on investments.
The Shariah Board
A compliant structure requires certification (Fatwa) from an independent Shariah Supervisory Board or recognized scholar, adding roughly $15k-$40k in annual operational overhead.
Debt and Leverage
Private Equity funds relying heavily on conventional leveraged buyouts (LBOs) face significant hurdles in structuring for Shariah investors, as the conventional debt at the HoldCo level is non-compliant.