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Money managers under the microscope

For Chicago hedge fund, Iraq is a different type of risk

November 19, 2010

Chicago hedge fund manager Kenneth Kuhn’s family thought he was crazy when he said he wanted to launch a new hedge fund focused on Iraq, but the one-time exotic currency trader said he believes the country can deliver outsized returns to investors.   

Kuhn, who stopped by Reuters offices this week, says his years of trading the Iraqi dinar from his Chicago office, inspired him to start a fund that would provide better access to Iraq’s financial markets.     
 

“There really wasn’t any good market access to Iraq. It’s really pristine ground for capitalism,” Kuhn said.  Kuhn and his colleague Abraham Merchant recently launched The Iraq Fund and have already raised $5 million to invest in the one-time cradle of civilzation.  Kuhn says he aims to raise an additional $5 million, and is joining the ranks of a few other Iraq-focused funds that are trying to make investments in the country,  like  Godvig’s  Babylon Fund, FMG’s Iraq special opportunity fund, and MerchantBridge’s Iraq-focused Mesopotamia Fund.

Security incidents have dropped precipitously this year in Iraq and there is a new government, so we asked Kuhn, where does a fledgling investor start in Iraq?

  • - Oil and oil services are the most obvious answer, Kuhn said. Some analysts believe that, based on the quality of its oil reserves, with proper investment Iraq could grow to be the second biggest oil producer in the world in the next decade. 
  • - Kuhn says he also sees opportunities in the agricultural industry, which is recovering after the oil-for-food scandal decimated the sector.
  • - And the tourism industry, which could benefit from several Muslim pilgrimage sites located in the country. 

Kuhn’s Iraq fund is necessarily small as the market capitalization of the entire Iraqi stock market is only about $3 billion, he said.  But his firm has already selected about 44 of the 93 stocks on the Iraq Stock Exchange, which trade anywhere from a fraction of a penny to 19 cents per share.

And despite the risks, Kuhn says the financial crisis has made everything seem risky, so investors who want to bet on the country’s recovery and take a long term view could see strong returns. “People have recognized that there is risk everywhere and rather than becoming avoidant, there are people who want the benefit of that risk,” Kuhn said.  “Iraqis have spent thelast seven years building a foundation from which to grow.”

Comments

When the international bankers set up offices in Iraq one then should feel comfortable about the financial possibilities there . You still have multiple religious, tribal, and political factions to overcome before one can see the light of day forthcoming .I hope that will happen for selfish reasons ,
Re :
Carl M Aven

Posted by carlanoing | Report as abusive
 

International bankers being able to set up offices is a political faction. Iraq still have sanctions from 1991 to over come! Until they are officially released, there can be no guarantees!

Posted by VAThomasJr1 | Report as abusive
 

Great write-up and a fascinating look at the latest in frontier markets. These guys are doing something similar to Colonel Edmund Luzine of Adirondack Capital Management – one of the few NYC i-bankers involved in the Iraq campaign.

Good luck with the Iraq Fund! I look forward to monitoring its progress and profiting in the region.

Posted by Tyler70 | Report as abusive
 

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