12-05-2025
Sharia-compliant alternative investments: a new era of growth
We have witnessed a significant growth in Sharia-compliant alternative investments in recent years, with a shift in demand for more diversified, scalable, and transparent investment solutions, particularly in the GCC region, led by Saudi Arabia and the UAE.
This shift is reshaping Islamic finance and unlocking new opportunities for institutional investors, family offices and high-net-worth individuals seeking ethical, high-yield investments.
This growth and transformation are underpinned by the strong growth in Islamic finance, which is expected to reach $6.7 trillion in assets under management (AUM) by 2027 with the GCC holding 77 per cent of all Sharia-compliant assets. Islamic ETFs (exchange-traded funds) have grown nearly fivefold to $2.5 billion since 2019, and the number of Islamic ETFs has tripled to more than 30. Sukuk issuance continued to rise, with the global outstanding sukuk market exceeding $1 trillion in 2024 - a significant jump from $280 billion in 2013 - with Saudi Arabia and Malaysia being the largest contributors.
At the same time, the global alternative investment industry has been experiencing rapid expansion, with private markets' assets under management projected to reach $18 trillion by 2027, growing at an 11 per cent CAGR (S&P Global). Alternative assets now make up a growing portion of portfolios, with private equity comprising 33 per cent, real assets 24 per cent, private debt 10 per cent and other alternative investments 33 per cent.
Looking ahead, younger high-net-worth Sharia-conscious investors are showing increasing interest in private market assets, further fuelling demand for alternative investment options across private equity, real assets and private credit.
Real estate investments continue to be of particular interest to GCC-based Sharia-compliant institutions, with institutions that invested more than 20 per cent doubling since 2022. As the GCC states continue to diversify, modernise and grow their economies, the supply-demand mismatch for high-quality residential, commercial and industrial property - the latter a sector where we have been extremely active - will offer investors strong investment opportunities.
For private equity, the increased maturity and sophistication in the GCC and an influx of multinational GPs have seen a step change in the GCC investment landscape. From $1 billion AUM in 2008, estimates for current GCC private equity AUM are now $12-$15 billion, with more than 100 active GPs in the region, including international firms. This figure reflects the amount of private equity capital managed by firms operating in the region and excludes additional capital that GCC investors have allocated to international funds.
Deal volumes are focused on technology, telecoms and financials, speaking to the diversification and growth prospects of GCC economies. For us, a key driver of investment opportunities that cuts across a number of these sectors, as elsewhere in the world, is the continued growth in business services outsourcing.
Alternative investments require Sharia supervisory boards and business teams working together to develop scalable yet compliant financial structures for SPVs or large-scale ventures. The success of this lies in maintaining innovation and scalability while adhering to Islamic values.
One area gaining traction is the alignment of Islamic finance with ethical and sustainable investing, as Shari'ah principles emphasise social responsibility and environmental stewardship.
In addition, technology, FinTech and cryptocurrency are rapidly transforming Islamic finance. Blockchain, for example, can enhance Sharia compliance by ensuring transparent and tamper-proof records of transactions. FinTech is also democratising access to Sharia-compliant investments, allowing a broader range of investors to participate in private market deals. Artificial intelligence is also playing a broader role - from optimising investment strategies and operational efficiency to enhancing due diligence, risk assessment and portfolio management - all while supporting compliance processes.
A major misconception in Islamic finance is that institutions apply superficial compliance checks while operating similarly to conventional financial institutions. However, Sharia scholars emphasise substance over form, making sure transactions uphold ethical and Islamic economic principles with integrity.
Although cryptocurrency remains a controversial area within Islamic finance, regulatory frameworks are evolving, and tokenised Sharia-compliant digital assets are gaining traction.
Overall, the outlook for Sharia-compliant alternative investments is very promising and with the growing institutional participation in private equity and real estate, the sector will undoubtedly continue to show strong growth.
