Announcement: Asia Frontier Capital to Launch AFC Iraq Fund
In this Issue
Why is AFC
Asia Frontier Capital “AFC” is very pleased to announce the launch of the AFC Iraq Fund, which will be open to initial subscription for investors as of today ahead of the first NAV of USD 1,000 calculated on the 26th June 2015. The AFC Iraq Fund will build on AFC’s core strengths and excellent track record investing in frontier markets as well as our history of launching innovative, successful funds. The AFC Iraq Fund is managed under the executive leadership team of Thomas Hugger (CEO & Fund Manager) and Ahmed Tabaqchali (CIO) who between them have more than 47 years of investment experience as well as extensive background covering emerging, frontier and MENA markets.
AFC has always been a strong advocate for the potential of frontier markets and our new Iraq offering holds incredible value for investors looking for high long-term investment returns. Whilst there are no doubt challenges facing the Iraqi economy, the current market valuations have the characteristics of a short-term negative reaction to the current crisis and do not reflect the enormous potential of the Iraqi market in the medium and longer term. The dual impact of ISIS and the significant drop in oil prices caused Iraq's equity markets to undergo a severe correction, reflecting the challenges present in 2015 with the stock market down by over 30% from last year’s highs as measured by the either the Rabee Securities RSISX Index or by the decline in market capitalization as of end of May 2015. The market however, has seemingly marked the bottom and stated a tentative recovery with the market capitalization recovering by 11% and the price index by 25% from the extreme lows earlier in the year as the prospects for both the oil price and the situation with ISIS have become more stable.
The AFC Iraq fund will be positioned to take advantage of this situation to capture the upside of Iraq’s wealth of natural resources and strong underlying fundamentals. Post-conflict countries are unique phenomena for investors offering large potential returns and the AFC Asia Frontier Fund has been building its expertise investing in Iraq over the past several years.
About the AFC Iraq Fund
The launch of the AFC Iraq Fund follows the recent hire of Mr. Ahmed Tabaqchali, who joined AFC’s investment team as CIO of Iraq investments in November 2014. Mr. Tabaqchali now holds the title of CIO of the AFC Iraq Fund.
The open-ended AFC Iraq Fund is designed to offer qualified US and non-US investors high long term returns which have a low correlation with global, emerging & other frontier markets, as well as to provide a significant diversification opportunity for investor portfolios. The fund's investment universe consists of local companies that have their principal business activities in Iraq, as well as foreign-listed companies that have the majority of their business in Iraq.
The AFC Iraq Fund offers investors high return prospects by positioning itself to benefit from the post-conflict recovery and underlying potential of Iraq. In addition, the fund will capture returns linked to the resource-based upside derived from improvements in the overall economy, which will see significant benefits from the next commodity cycle upswing. The fund aims to achieve long-term capital appreciation for investors by capturing value in growth companies over the next 7-10 years, predominantly targeting companies leveraged to Iraq’s post-conflict recovery and growth trajectory. Outside of post-conflict and oil price recovery opportunities Iraq equities offer value and exposure to sectors less dependent upon oil and ISIS related factors such as banks, insurance, consumer goods and telecoms amongst others.
The Fund will be open to initial subscription for investors as of today ahead of the first NAV of USD 1,000 calculated on the 26th June 2015. The founders of the AFC Iraq Fund have decided on the following to ensure that early investors are shielded from the start up and initial running costs such that:
Iraq offers a very compelling growth story as a young and attractively valued market that has significant room to grow. The development of the domestic economy has been held back by 35 years of wars, sanctions and civil strife culminating in ISIS occupation and the ongoing war. The country will benefit significantly from post-war recovery as stability offers individuals and businesses the opportunity to work, employ, and spend, which will drive domestic consumption and investment. Equity markets in post-conflict Sri Lanka saw a rally of +250% in the 18 months after the end of its civil war even without the significant resources to rebuild that Iraq has on offer. Other post-conflict country stock markets have also seen significant rallies in the immediate years after the end of conflict.
Compared to other post-conflict countries that often have broken economies, Iraq is unique in that it has such significant oil wealth already at its disposal. Iraq presently holds approximately 9% of proved world oil reserves, which could potentially rise to as much as 15% as further oil fields are explored and developed. From a macroeconomic perspective, the country has a large, young, and rapidly growing population estimated at 35.9 million with rising income levels that will continue to increase as investment in the oil industry and higher exports support domestic consumption. In spite of the well-documented violence in the country since 2003, Iraq has had one of the fastest growth rates in the world and an estimated GDP of USD 250 billion in 2018. Increasing oil exports have also supported the country’s balance of payments, leading to a stable currency for the last 2-3 years as well as increasing foreign reserves.
While the long term story is very appealing, the market entry point for investors at this present time is particularly attractive given the current investment environment. The timing of this fund offers a unique opportunity, as present-day valuations in Iraq are significantly depressed by two phenomena that we expect will not continue in the years to come: the ISIS conflict and depressed oil prices. These events have caused Iraq's equity markets to undergo a severe correction, reflecting the challenges present in 2015 as the country continues to mobilize against ISIS and makes progress towards rebuilding its economy in the wake of recent events.
To help eliminate some of the misconceptions of the Iraq market AFC has been building our research coverage of Iraq as an investment destination which can be found on our website here:
Information on the investment environment in Iraq and its stock market can also be found on our website here:
Why is AFC Launching the AFC Iraq Fund?
Asia Frontier Capital is a boutique fund manager with a focus on executing niche investment strategies where we believe we can sustain our advantage in generating returns. Our mission is to be on the front line of fund management in Asia by launching innovative products that give investors first mover access to frontier markets. AFC and our team focus on our core competencies and is one of the world’s few investment managers focusing solely on the growing frontier economies in Asia. The AFC Iraq Fund will give our investors dedicated exposure to the potential returns from the economic recovery of Iraq backed by a seasoned international investment team.
Upcoming AFC Travel
With kind regards,
Asia Frontier Capital Limited
This document does not constitute an offer to sell, or a solicitation of an offer to invest in AFC Asia Frontier Fund, AFC Asia Frontier Fund (non-US), AFC Vietnam Fund or any other funds sponsored by Asia Frontier Capital Ltd. or its affiliates. We will not make such offer or solicitation prior to the delivery of a definitive offering memorandum and other materials relating to the matters herein. Before making an investment decision with respect to our Funds, we advise potential investors to read carefully the respective offering memorandum, the limited partnership agreement or operating agreement, and the related subscription documents, and to consult with their tax, legal, and financial advisors. We have compiled this information from sources we believe to be reliable, but we cannot guarantee its correctness. We present our opinions without warranty. Past performance is no guarantee of future results. © Asia Frontier Capital Ltd. All rights reserved.
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