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Following - I can’t stress how much this exact question has been bothering me lately, and how little guidance exists online and from scholars/imams in my area. I have yet to find someone who is well-versed in how PE (and other more niche “high-finance”-type careers) works and can coherently explain how Islamic principles can be applied to assess its permissibility
Real. Private equity was my main goal for building true wealth. The bigger intention was to use it to eventually pivot to starting my own fund to empower the ummah. I’m not very entrepreneurial and I’m afraid pe was the highest I could’ve gone in the corporate realm while still being in a structured environment…
Waluikum Assalam. How strict is your definition of haram vs. halal in the business sense? Are you comfortable being around debt in general? Being involved in finance is going to involve some aspect of debt/interest/credit because it’s just how a capitalist society is set up. It’s the only way to put limited physical money to work because no one is sitting on wads of cash stacked in warehouses.
So if by growth equity you mean that the PE firm is acquiring a stake in a company, then this would be similar to how Islamic PE/banking works or stock investments. Starting top-down:
+Consider the industry the PE firm/fund plays in. If the PE firm is investing in alcohol, cannabis or other vice industries then you could take the position that working for the PE firm is haram - regardless of your role.
If that hurdle is fine, but your concern is that the PE firm is using debt as the primary instrument to acquire stakes, then:
+Consider your role. If the industry you’re investing in is generally halal, then how close to the financing aspect will you be. Are you going to be involved in debt financing/arrangements vs. deal sourcing vs. operations/value vs. investor relations? Depending on your comfort level, you could say any interest is haram and then you have your answer. Or you could take the position that you’re not directly facilitating interest and you might justify it.
And if the above checks out:
+Consider how you will be compensated. Growth funds typically have a mixture of interest income from cash holdings, returns from PortCos that have debt on their balance sheet and gains from companies that don’t cleanly fit into a halal vs. haram split. Salary and bonus is pretty straightforward but carry is directly related to fund performance. You could take a purification approach or completely be against it.
I’m not a sheikh and came up with this top-down framework as an ex-Mck guy myself. It’s important to note that you’ll get either a strict view (not allowed at all) or a moderate view (allowed but only certain roles/funds). There are Islamic PE funds but their structure is different than what you find in the West. Point being is that no sheikh is going to give you a definitive answer (and different sheikhs will give you different answers) because it’s ultimately a personal decision.
Thanks for the perspective. I’ve never been one to dance around subjectivity of what is halal vs haram so I’m sure you can understand the mental back and forth going on.
From what I understand on comp, carried interest isn’t the same as traditional riba
I am not an expert for this question at all but I have advised PE funds for around 7 years as a transaction advisory consultant and at least understand how their business model works. What you have to understand is that the traditional PE is based on leveraged buy outs, so financing majority of the deal by borrowing money from banks - that obviously involves interest payments. I guess you could argue that almost every firm on the entire world finances itself with debt but for PE firms, this is an essential part of the business model. I personally would stay away from it, but again - I am neither a sheikh nor have I ever asked one about this. If being on the sell side is really your dream, maybe consider getting into a corporate M&A role (I moved into that - descent money but obviously not as much as in PE). Alternatively, I could imagine that family offices have a different business model and work less with leveraged buy outs, but that’s just a hypothesis of mine.
Very valid perspective and one that’s commonly held - May Allah swt make it easy for us indeed, inshaAllah