Sharia'a Compliant Funds

Sharia’a Compliant Funds

Istanbul Sabahattin Zaim University 18 June 2014

1 Disclaimer and Contact Details

This presentation does not constitute legal advice. The presenter does not accept any responsibility to anyone who may act, or refrain from acting, as a result of anything shown or said during this presentation.

Contact details: Bilkis Ismail LLB (Hons), LLM, CTA, Barrister Tel Dubai: +971 56 625 1197 Tel UK: +44 7944 212057 Email: [email protected] Skype: Bilkis_Ismail

2 Investment Funds

3 What is a Fund?

▪ An investment vehicle that is made up of a pool of funds collected from a number of investors for the purpose of investing in different asset classes as stated in the fund’s prospectus/offering document/information memorandum. ▪ Advantages: i) access to a greater risk of potential investments than would be available to any individual investor ii) risk diversification iii) management of investment by fund managers with expertise in the particular asset class iv) significant potential upside on returns ▪ Disadvantages: i) management fees payable ii) tie in of cash depending upon nature of fund, term life, and redemption/transfer rights iii) no guarantee of upside, could lose entire investment

4 Types of Funds

. Mutual/retail/wholesale - UCITS? . Institutional - restricted/private placement regime . Club deal - friends ▪ Types of asset classes: – Private equity – Listed equity – Debt/mezzanine – Infrastructure – roads/water/oil & gas – Real Estate – Commodities – commodities/futures/combination strategy – Aviation, shipping, mining – Art, forestry, agriculture, litigation…

5 Fund Structures

 What drives a fund structure?

• Tax neutrality of vehicle • Nature of income – capital gains v income • Tax treatment of investors and management team • Tax treaties to reduce WHT on exits • Certainty of applicable law, investment treaty protection • Certainty in event of disputes (English law clause/English courts exclusive jurisdiction)  Different fund structure options: • Limited partnership with a managing general partner • Investment company – limited or public • Investment trust • Unit trusts • Special investment vehicles with specific tax wrappers – SICAR, SIFs…

6 Private Equity Fund

▪ Definition: a pool of money collected by a manager from a limited number of professional/institutional investors and placed in a tax efficient vehicle for the purposes of investing, primarily, in the shares of unquoted companies.

▪ Advantages:— benefit from potential upside of investing in unquoted companies – risk diversification – access to a greater risk of potential investments than would be available to any individual investor – prestige of investing alongside big institutional names SWFs / pension funds / government institutions. ▪ Major private equity acquisitions: Nabisco…Alliance Boots, Hertz, Jimmy Choo, Tommy Hilfiger, Debenhams, Somerfield, Hilton Hotels. ▪ Selected list of private equity firms: Carlyle, KKR, Blackstone, Bain Capital, Apax, Macquarie, Abraaj Capital…Turkven, Actera, Mediterra, Rhea Asset Management, TRPE Capital, Crescent Capital, Taksim Capital…

7 Life of a Private Equity Fund from Inception to Liquidation 1. Manager/Adviser/General Partner - new PE fund idea. 2. Soft marketing with simple terms of the fund – soft commitment letters from investors. 3. Private placement memorandum: market opportunity, track record of fund manager/investment team, summary of fund structure, principal terms, tax terms and marketing legends. 4. Detailed fund documentation: limited partnership agreement or shareholders agreement, subscription agreement, investment management agreement, advisory agreement, co-investment agreement, administration agreement 5. Key terms: fund structure – tax transparency, nature of investments, diversification limits and thresholds, restrictions on amount of borrowings, management fee/general partner’s share to be paid to the Manager, key men, organisational expenses (typically capped), limited excuse rights, operational expenses, distributions, preferred return, carried interest – special profit, right to remove the Manager/General Partner, advisory committee, indemnification.

8 Life of a Private Equity Fund from Inception to Liquidation cont. 6. Investor and Manager/General Partner negotiate terms. Typically results in amending fund documentation; specific side letters – MFN clause. 7. Closing – signed subscription agreement/deed of adherence and admit investors/drawdown of capital. 8. Closings of fund up to the end of subscription period – typically 12-18 months. 9. Investment period – typically 5 years, occasional extensions. 10. Manager/General Partner divests of investments during the investment period and thereafter. 11. Return of funds – fund distribution waterfall. 12. Liquidation of fund – typically 10 years (unless extensions) from the end of the subscription period.

9 Basic Limited Partnership Private Equity Fund Structure

Manager General Investment Team and/or Adviser Partner

Investors Management Agreement General Carried Interest and / or Partner Partnership Advisory Agreement Limited Partnership

IHC IHC

Portfolio Companies

10 Basic Limited Partnership Private Equity Fund Structure - Distributions

Manager General Executives and/or Adviser Partner (GP) 20% of profits Management Investors Agreement General Carried Interest and / or Partner (GP) Partnership Advisory Agreement 80% of Limited Partnership (LP) profits

General Partner’s Share / Management Fee IHC IHC Carried Interest Portfolio Companies GP Commitment/Returns Investors Commitments/Returns 11 Basic Corporate Private Equity Fund Structure

Investment Team = Manager Investors Board of Directors and/or Adviser

Management Class A and Agreement C Shares Class B Shares and / or Advisory Agreement Investment Fund Company

Management Fee Carried Interest IHC IHC

GP Commitment/Returns Portfolio Companies

Investors Commitments/Returns 12 Sharia’a Compliant Funds

13 Islamic Asset Management – Size of Industry – Data correct?

Global: 1,065 Islamic funds, $56bn AUM, 4.7% of global Islamic Assets. Mutual funds: 786 Islamic funds, $46bn AUM, 94 fund launches 2013.

Year No of Funds AUM $ Billion Dead Funds 2007 576 28 9 2008 645 26 19 2009 702 37 35 2010 795 46 48 2011 878 47 64 2012 971 57 87 2013 (Sept) 1065 56 24

Source: Global Islamic Asset Management Report 2014, Thomson Reuters

14 Islamic Funds - Domiciles

Domicile No of Funds AUM $ Billion Malaysia 263 10,164 Saudi Arabia 163 6,056 Luxembourg 111 3,401 Pakistan 62 2,364 Indonesia 53 2,157 Ireland 53 1,742 Jersey 33 1,286 Kuwait 26 705 South Africa 21 663 Canada 19 248 UK 12 248 Malaysia Saudi Arabia Luxembourg UAE 12 331 Pakistan Indonesia Ireland Other * 91 248 Jersey Kuwait South Africa Canada UK UAE * Bahrain, Cayman Islands, Guernsey, Singapore, USA, Australia, India, Egypt, Qatar, Tunisia, Isle of Man, Mauritius, Other Morocco, France, Japan, Oman, Russia, Switzerland, Turkey 15 Source: Global Islamic Asset Management Report 2014, Thomson Reuters Islamic Funds – Asset Type 2013

2% 3% Despite increase in sukuk fund issuances, equity funds continue to 12% dominate at 51% AUM.

Money market funds were the greatest contributor to AUM in

15% 2013. 54% Retail funds comprise 80% and institutional funds comprise 20%. Need to see an increase in 16% institutional funds if industry is to see growth because retail investors are short termism.

Equity 54% Mixed Assets 16% Bond 15% Money Market 12% Commodity 3% Real Estate 2% Other 1%

16 Source: Global Islamic Asset Management Report 2014, Thomson Reuters Fund Launches and Asset Types

Year No of Bond 1 Equity 2 Mixed 3 Money Real Other 5 Funds Market 4 Estate 2013 82 24 30 19 8 1 - 2012 54 9 23 9 6 4 4 2011 62 9 32 4 10 6 1 2010 77 19 34 12 7 4 1 2009 18 18 3 11 1 2

Money market funds, together with Bond funds, overtook equities for the first time in 2013.

1 Fixed income with maturity > 1 year 2 Stock markets 3 Variable income and fixed income securities 4 Fixed income with maturity < 1 year 5 Commodities, derivatives, warrants, structured products, unclassified, undisclosed, hedge funds.

17 Source: Global Islamic Asset Management Report 2014, Thomson Reuters Global Islamic Fund Market Breakdown

800 686 700

566 600

500

400

300 AUM $ Million $ AUM

200 96 100 6 0 Pension Funds Insurance Funds Private Equity Funds ETFs 54 43 37 25 AUM $ Million

18 Source: Global Islamic Asset Management Report 2014, Thomson Reuters Why is Private Equity suited to Islamic Finance? ▪ The mudarabah structure is suited well for the GP/LP fund model. The investors (raab-ul- mal) provide the capital and the fund manager (mudarib) provides asset management expertise. ▪ Roles are clearly delineated in a GP/LP context – the investors are liable to the extent of their capital and the mudarib is liable only to the extent it is negligent. ▪ The musharakah based profit and loss sharing model for investment in underlying portfolio companies encourages entrepreneurship and enables companies to obtain funding to generate internal growth without losing control. ▪ The structure permits the manager to both act as a mudarib in relation to investors and to enter into a musharakah in relation to its own co-investment (separate from its right to carried interest). ▪ Muslim investors are able to share in the risk and rewards of medium to long term equity participation in high growth unlisted companies without breaching sharia’a restrictions. ▪ Sharia’a funds because of their investment restrictions are attractive to SRI investors.

19 Sharia’a compliant Private Equity Fund – Key principles 1. Interest (riba) - literal meaning is increase/excess ▪ Prohibition from charging interest. “God hath permitted trade and forbidden usury”. Returns should be earned from commercial risk. ▪ Interest was denounced long before the birth of Islam. As far back as 350BC (over 1000 years before Islam) Aristotle, one of the original philosophers of Western thought, wrote: “The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it. For money was intended to be used in exchange, but not to increase at interest. And this term interest, which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of an modes of getting wealth this is the most unnatural.”

20 Sharia’a compliant Private Equity Fund – Key principles cont. 2

2. Transaction must be just, fair and ethical . Agreements leading to ‘unjust enrichment’ will be rendered void. Carried interest is acceptable as a return for the Manager’s efforts in generating superior returns 3. Speculation/risk/gambling (maysir) ▪ Gambling is prohibited; commercial risk is permitted 4. Distinguishing risk from uncertainty (gharar) ▪ Ambiguity must be eliminated - contractual uncertainty may render a document to be considered void.

21 Sharia’a compliant Private Equity Fund – Key principles cont. 3 5. Investment in certain industries prohibited: ▪ Providers of conventional financial services (including conventional banks, insurance companies and brokerage houses) ▪ Providers of entertainment services (including, gambling and casinos, cinema, music, pornography [hotels/airline operators - debatable]) ▪ Manufacturers or distributors of weapons ▪ Manufacturers, packers, distributors or pork related products, tobacco or alcohol ▪ Companies significantly affected by the above (based on a threshold of approximately 5% of operating income) Favourable sharia'a industries (indices): IT, telecommunications, infrastructure, industrial real estate, oil and gas, healthcare, education, real estate with restrictions on the nature of commercial tenants, and pharmaceuticals. = Forms of investment require detailed consideration. 22 Sharia’a Compliance at the Fund Level 1: Fund structure overview

Sharia'a Supervisory Board Sharia'a Advisory Agreement

General Partner Investors

Fund can be Sharia'a structured as LP Fund LP compliant or corporate financing (loan/capital Conventional split) financing Target subject to limits

23 Sharia’a Compliance at the Fund Level 2: A separate, parallel fund for

Sharia’a investors Sharia'a Supervisory Board

Sharia'a Advisory Agreement General Partner

Sharia'a Conventional Compliant Fund LP LP

Target

24 Sharia’a Compliance at the Fund Level 3: Benefits of a parallel fund for Sharia’a investors ▪ Co-investment agreement between the main fund and the sharia’a compliant fund so that they invest pari passu and thus parity of treatment. ▪ Each vehicle bears its own costs. Non-sharia'a investors are not subject to additional sharia'a fiduciary costs or costs and expenses of sharia'a structuring/supervisory board. ▪ Excuse rights in sharia'a compliant fund gives the GP greater protection/flexibility to make investments - if exercised, then mismatch in returns. ▪ Non-sharia’a investors do not have to review/take advice on sharia'a provisions (e.g. leverage/sharia’a waterfall which may be applicable). 25 Sharia’a Compliance at the Fund Level 4: Drafting the documentation ▪ All key fund documentation, in particular the limited partnership agreement, must do the following: ▪ refer to the sharia'a compliant nature of the fund, particularly when discussing the investment policy and investment restrictions; ▪ incorporate the key role of the sharia'a supervisory board of the fund including screening all portfolio investments; ▪ annual sharia’a audits; ▪ structure the fund with no interest-bearing leverage, and in particular the typical loan/capital split in English limited partnerships must be considered if using a partnership; ▪ have a sharia’a distribution waterfall to comply with sharia'a profit sharing principles (where required); ▪ deal with issues relating to the default of an investor – inability to levy interest, plan for corrective action (donation); ▪ cater for equalisation payments by subsequent investors without levying interest; and ▪ indemnification re Manager/investment team/advisory committee.

26 Sharia’a Compliance at the Fund Level 5: The Sharia’a Supervisory Board ▪ The SSB for a fund will usually consist of 3 scholars who are cross- representative of the investors in the Fund; 1 scholar will be appointed as the chairman of the SSB. ▪ The role of the SSB: ▪ To establish fund guidelines for sharia'a compliant investment ▪ To sign off on all fund documentation and structure - issue fatwa ▪ To monitor fund operations (usually in quarterly reviews) ▪ To deliver updates to investment guidelines or criteria if and when required ▪ To conduct regular audits of the fund and its investments to ensure sharia'a compliance, if so requested ▪ To set proper accounting/ dividend “cleansing” or “purifying” procedures if requested by the fund’s Manager ▪ To offer Muslim investors the assurance that their investments are properly managed according to Islamic principles

27 Sharia’a Compliant Portfolio Investing: Leverage/financing investments ▪ Leverage can be undertaken via entering into a reverse murabaha (cost plus financing), ijarah (sale and leaseback) or sukuk. ▪ Depending upon the relevant Sharia’a Supervisory Board’s requirements, financial ratios which must be observed at the investment level: ▪ Conventional interest bearing debt ratio must not exceed 33% ▪ Cash and interest bearing securities must not exceed 33%; and ▪ Receivables must not exceed either 45% (FTSE and Dow Jones) or 49% (S&P). ▪ To the extent the Fund acquires >30% of the shares of the portfolio company, conventional debt should be replaced. Typical 2-3 year turnaround time.

28 Case Studies

29 Case Study 1: Reverse Murabaha / Tawarruq

commodities Broker 1 Bank £32 million spot payment

£32 million + £x (fixed) Murabaha deferred consideration (with Agreement fixed maturity date) commodities

Agency commodities Agreement

Broker 2 Bank 2 Customer

£32 million spot payment Note: Reverse murabahas have fallen out of favour with some scholars and AAOIFI – option of last resort. Note AAOIFI requirements re separate banks v bank practice. For real estate the ijara option is to be preferred.

30 Case Study 2 – Defaulting Investors 1 • Impact if an investor defaults? • Manager will put in place measures to prevent default which can include: i) levy a financial penalty (repay amounts owing plus interest) ii) complete or partial forfeiture of interest in the fund (commitment, capital drawn down, income and capital earned) iii) to offer the interest of the defaulting investor for sale iv) any other remedy. • If an investor defaults the fund documentation will typically require the other investors to take up the defaulting investors share for that drawdown. • Assume an investor has committed to invest £100 million in a fund of £500 million (plus 1% manager commitment). The manager has drawn down £60 million from the investor. The manager issues a notice to draw down a further £20 million for an investment and the investor defaults. What can the manager do? • What about the impact of sharia'a?

31 Case Study 2 – Defaulting Investors 2

Investor A Investor B C D E Manager 1 Total

Commitment £50m £100m £80m £120m £150m £0m £500m

Drawn down 2 £30m £60m £48m £72m £90m £300m

Capital call £10m £20m £16m £24m £30m £100m

Investor B £82,191 penalty Defaults 3

Investor B defaults £12.5m - £20m £30m £37.5m £100m 4 (+2.5) (+4) (+6) (+7.5)

Cancellation of £50m 0 5 £80m £120m £150m £400m 6 Commitment

Termination of £50m £80m £120m £150m £400m fund - assume £4m £6.4m £9.6m £12m £32m £200m of fund profits 7 £8m £8m £16m 0 £25.6m £38.4m £48m £32m £160m Repaid 50% £3m £30m 8 4.8m £7.2m £9m £6m £60m

1. The manager is also typically required to commit 1-2%. For simplicity I am ignoring the manager commitment and assuming it has not made a commitment. 2. Amounts drawn down will be utilised to pay management fees, operational expenses and invested in investments. 3. Penalty paid by the defaulting investor is shared amongst non-defaulting investors 4. Because of Investor B’s default, other investors will typically be required to increase their commitment for that drawdown (ie an additional £20m) 5. Defaulting investor will typically be entitled to payment of the whole or part of the £60m drawn down only after the other investors and carry partners receive their share of profits. No right to profits and no right to vote etc. 6. Reduced commitment will impact on management fees to be paid to the manager. 7. Hurdle is paid first to the investors and then typically a 100% or partial catch up to the manager – 80:20 split. 8. Defaulting Investor is repaid after everybody else in whole or in part. Assume repaid 50%. If repaid part, the rest is shared between the other investors/GP as profit. 32 Case Study 2 – Defaulting Investors 3 Sharia’a Solution • Some scholars – no penalty, no default, no recourse – makes fund unworkable. • Some scholars – allow the conventional terms in full. • Other scholars: no one solution and negotiated for each fund. • Penalty permitted but investor is given time to redress default and penalty is to be shared between investors. Other scholars permit penalty but to be purified/donated to charity. • Forfeiture – permitted but relaxed on the basis that the defaulting investor shouldn’t lose its amounts drawn down so entitled to the full amount (£60m) when the other investors are entitled to their capital • Profit – the defaulting investor should be entitled to some profit for the duration of the time the money is held by the fund. Instead of 8% hurdle and 80% of the profits it can be paid a notional profit of 1% uncompounded so it is in a better situation than would be the case if it was investing in a conventional fund.

33 Case Study 2 – Defaulting Investors 4 Sharia’a Solution

Investor A Investor B C D E Manager 1 Total

Commitment £50m £100m £80m £120m £150m £0m £500m Drawn down 2 £30m £60m £48m £72m £90m £300m Capital call £10m £20m £16m £24m £30m £100m

Investor B £82,191 penalty Defaults 3

Investor B defaults £12.5m - £20m £30m £37.5m £100m 4 (+2.5) (+4) (+6) (+7.5)

Cancellation of £50m 0 5 £80m £120m £150m £400m 6 Commitment

Termination of £50m £60m 8 £80m £120m £150m £460m fund - assume £200m of fund £4m £6.4m £9.6m £12m £32m profits 7 £250,000 £250,000 £8m £8m £16m 0 £25.6m £38.4m £48m £32m £160m

The fund documentation will typically provide sharia'a guidelines detailing:  Prohibited Sectors (see slide 10)  Permitted Investments (i.e. an investment not in a prohibited industry)  FinancingArrangements (i.e. permitted sharia'a compliant hedging, to the extent permitted by the particular scholars)  Investments by way of equity and with observance of the following financial ratios: ▪ Leverage: the level of conventional debt shall be less than 33% of total assets; ▪ Account Receivables: account receivables and cash shall be less than 50% of total assets; ▪ Cash and Interest: cash and interest bearing items shall be less than 33% of total assets; and ▪ Non-compliant income tolerance: 5%. 35 Case Study 3 – Infrastructure 2

Sharia'a Supervisory Board Sharia'a Advisory Agreement

General Partner Investors

Fund can be Sharia'a structured as LP Fund LP compliant or corporate financing (loan/capital Conventional split) financing Target subject to limits

36 Case Study 3 – Infrastructure 3

The problem with infrastructure funds/mega buyout funds, is that whilst the investment may fall within the permitted industry, the nature of the proposed investment may display one or more of the falling characteristics:  size of the investment required is significant and the fund will typically be a minority investor, co-investing with other investors and thus has limited investor rights;  investment is unlikely to meet the financial ratios;  the debt in the proposed target may not be convertible into sharia'a compliant debt;  the target may have entered into non-sharia'a compliant hedging arrangements. What’s the solution? Should the Fund invest or not?

37 Case Study 3 – Infrastructure 4

Sharia'a Supervisory Board General Partner

Investors

Fund LP

SPV Commodity Murabaha What does Independent the Fund Third Party Shares in target own?

38 Case Study 4 – Real Estate Funds 1 – Sharia’a Compliant Financing

Sharia'a Supervisory Board General Partner

Investors

Fund LP

Equity

Bank SPV Sharia’a compliant financing

39 Case Study 4 – Real Estate Funds 2 – Conventional Financing

Sharia'a Supervisory Board

Fund LP Sharia'a Compliant LP

Equity Equity

Murabaha

Bank SPVs Murabaha Conventional Financing Financing

40 Case Study 5: Tax Structuring for an investment into Saudi Arabia – Upstairs/Downstairs

Fund I Manager Management GCC Saudi Agreement I Investors Investors I 100% 100% I Adviser General Partner I Investment Cash Management Feeder Advisory (Saudi Arabia) Agreement I Non-GCC Limited Partners I Mudarabah I Agreement GCC SPV I Management Agreement I GCC SPV Fund LP I Saudi Portfolio Co I I Non-Saudi Portfolio Companies GCC SPV I GCC SPV I 41 Saudi Portfolio Co I Case Study 6: Investing into Sudan

Sharia'a Supervisory Board Sudanese and other investors

Returns General Partner Sharia'a Compliant Fund LP

Equity

Holding Company

Equity

Sudanese Cash Sudanese SPV Investors Musharakah

Agreement 42 Case Study 7 – Distribution Waterfall 1

▪ The case study is based on the following assumptions: ▪ GPS/Management Fee is paid at the date of distribution ▪ Drawdowns from Investor of £1,000 ▪ Profit from disposals: £500 ▪ Model 1 - £500 profit, £20 GPS is treated as profit ▪ Model 2 - £480 profit, £20 GPS is treated as an expense and thus reduces distributable profit from £500 to £480 ▪ Model 3 - £500 profit, GPS is a partnership profit share ▪ Realisation of total commitments occurs all at once (i.e. no dividends or other preliminary payments) ▪ The 1% initial income return as required by the Sharia'a Supervisory Board is distributed amongst all partners pro rata to their capital commitments. 43 Private Equity Fund Distribution Waterfall Model 1: Conventional Fund / Sharia’a fund with Management Fee GP Investor GP/ Total Reducing Carry Balance Vehicle

1  General Partner Share / 2% of total Commitment £20.00 £20.00 £1,480 Management Fee *

2  Return to Investors Total Participation drawn down £1,000.00 £1,000.00 £480

3  Preferred Return 8% of total Participation drawn £80.00 £80.00 £400 down

4  Catch up for the Carry 25% of Preferred Return £20.00 £20.00 £380 Vehicle

5  Balance 80:20 (split of 80% to Investors £304.00 £304.00 £76 the profit of £500 * less amounts paid out under 20% to Carry Vehicle £76.00 £76.00 0 (1), (3) and (4) above)

Total: £20.00 £1,384.00 £96.00 £1,500.00

*GPS of £20 is treated as profit payment 44 Private Equity Fund Distribution Waterfall Model 2: Conventional Fund / Sharia’a fund with Management Fee GP Investor Carry Total Reducing Vehicle Balance

1  GPS * 2% of total Commitment £20.00 £20.00 £1,480

2  Return to Investors Total Participation drawn down £1,000.00 £1,000.00 £480

3  Preferred Return 8% of total Participation drawn £80.00 £80.00 £400 down

4  Catch up for the Carry 25% of Preferred Return £20.00 £20.00 £380 Vehicle

5  Balance 80:20 (split of 80% to Investors £304.00 £304.00 £76 the profit of £480* less amounts paid out 20% to Carry Vehicle £76.00 £76.00 0 under (3) and (4) above)

Total: £20.00 £1,384.00 £96.00 £1,500.00

*GPS of £20 is treated as expense and thus reduces distributable profit to £480 45 Atypical Private Equity Fund Distribution Waterfall Model 3: General Partner’s Share GP Investor Carry Total Reducing Vehicle Balance

1*  Initial 1% of income 78%** to Investor £3.90 £3.90 £1,496.10

(1% x £500 profit) = £5.00 2% to GP £0.10 £0.10 £1,496.00

20% to Carry Vehicle £1.00 £1.00 £1,495.00

2  GPS 2% of total Investor Commitment £19.90 £19.90 £1,475.10 (£20) less amount received under (1) above

3  Return to Investor Total Participation drawn down £1,000.00 £1,000.00 £475.10

4  Preferred Return 8% of total Participation drawn £76.10 £76.10 £399.00 down (£80) less amount received under (1)

5  Catch up for the Carry 25% of Preferred Return less £19.00 £19.00 £380.00 Vehicle amount received under (1)

6  Balance 80:20 (split of the 80% of profit to Investor less £304.00 £304.00 £76.00 remainder of the profit of amounts under (1) and (4) above £500) 20% of profit to Carry Vehicle £76.00 £76.00 0 *This relates to the income distribution waterfallless amounts under (1) and (5) as required by the Sharia’a Supervisory Board above

** For simplicity GPS reduces Investor’s share Total: £20.00 £1,384.00 £96.00 £1500.00 46