Non-Islamic investors are channelling money into an Islamic leasing fund promoted by The United Bank of Kuwait (UBK). The flow of funds reflects a growing appetite for Islamic instruments from conventional Western institutions, who are looking to diversify their investment portfolios after a volatile year for the international bond and equity markets.

The London-based UBK has underwritten The Leasing Fund for up to $100 million – the bank’s target for investment by end-1995. It had made investments of about $21 million by mid-December and expects this to rise to $35 million by mid-January, says Duncan Smith, head of UBK’s Islamic investment banking unit.

‘We are getting approaches from outside our usual Islamic banking constituency because this is a good deal,’ Smith says. ‘The Leasing Fund is a real asset thing, not a financial asset, providing capital which can rise if interest rates or inflation go up.’

The fund invests mainly in low-tech equipment for lease to US Fortune 500 companies. Cash funds have proved increasingly attractive given the disappointing performance of the bond and equity markets in 1994, leading investors to look for other instruments.

The Leasing Fund is an open-ended fund, authorised and regulated by the Central Bank of Ireland. Minimum subscription is $500,000.