One of the most attractive as-pects of investing in Iraq, according to Mr. Rice, is the fact that investments in local businesses are insured by the Overseas Private Investment Corp., a government agency.
“Political-risk insurance is dirt-cheap and backed by the U.S. government,” he said. “They will repay 90% of your capital investment if there’s any damage, and as the factory appreciates in value, the insurance is adjusted accordingly.”
The interesting thing about both of these funds, is that both are managed by former soldiers. Where as I will not recommend one over the other, or even tell you to put money into these funds (if you have a 100,000 dollars to spare-lol), I did think it was interesting to put up the information about such a thing. I am cheering on Iraq and all of it’s development possibilities, and investment is a key component of that. Also, with their port and river access, oil profits, and the Overseas Private Investment Corp. covering investments, investing in Iraq becomes more attractive. –Matt
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Ex-soldier eyes surge in Iraq’s prospects
Leaves wealth manager for private-equity firm that he co-founded
By Charles Paikert
June 7, 2009
Dan Rice’s decision to leave his job as managing director at Convergent Wealth Advisors last month to work full time as a partner for Marshall Fund Capital Advisors LLC may seem like a conventional enough career move.
That is, until you realize where Marshall Fund, a New York-based private-equity firm, is investing. It takes stakes in “small and middle-market companies in the agriculture, tourism, alternative energy and consumer sectors” of Iraq, according to its prospectus.
“Iraq is a great investment thesis,” Mr. Rice said. “It’s one of the fastest-growing economies in the world, and its combination of oil reserves and water from the Tigris and Euphrates rivers gives it something no other country in the region has. It should be the breadbasket of the Middle East.”
In fact, the fund’s first acquisition was a tomato paste and juice factory in Harir, a city in the country’s northern Kurdish region that has been operating since October and is now processing 300 metric tons of tomato products a day.
“The agricultural sector has been decimated,” Mr. Rice said. “Iraq has been importing $100 million of tomato paste a year, so there’s a tremendous demand for the product domestically. We should be able to pay back our original capital in 18 months.”
Although the insurgency is still a near-daily fact of life in Iraq, Mr. Rice insists the danger is diminishing.
“The insurgency is rapidly declining, and peace is spreading,” he said. “High oil prices at the same time of the American military’s surge made everyone rethink things and say, “Why fight each other when there’s a lot of money to be made?’”
Mr. Rice said he first saw Iraq’s investment potential while he served as an Army economic development officer in Tikrit in 2004 and 2005.
“I got to see everything from the marketplace to the ministry level,” he recalled.
When his tour of duty ended, Mr. Rice began to help out Wayne Culbreth, a friend and fellow economic-development officer who had re-turned to Iraq to look for investment opportunities.
In 2008, Mr. Rice, Mr. Culbreth and Andrew Eberhart founded the Marshall Fund, named after the Marshall Plan, the famous U.S. economic-aid program that revitalized Europe after World War II.
GOVERNMENT BACKING
The Marshall Fund is also looking to the U.S. government for help.
One of the most attractive as-pects of investing in Iraq, according to Mr. Rice, is the fact that investments in local businesses are insured by the Overseas Private Investment Corp., a government agency.
“Political-risk insurance is dirt-cheap and backed by the U.S. government,” he said. “They will repay 90% of your capital investment if there’s any damage, and as the factory appreciates in value, the insurance is adjusted accordingly.”
Other private-equity investors in Iraq include the Luxembourg-based Babylon Fund, founded in 2006 by Bjorn Englund, a former U.N. peacekeeper and managing director at Godvig Capital Management, also based in Luxembourg.
The largest investments in Iraq have come from companies and funds based in the United Arab Emirates, which have invested more than $31 billion in the country since 2003, according to published reports.
Although Mr. Rice admits he doesn’t walk around Baghdad without security, he said he has “no worries, none at all” about his personal safety in Iraq.
“A kid on patrol 300 days a year is really at risk,” said Mr. Rice, a 43-year-old graduate of the U.S. Military Academy at West Point who won the Purple Heart while serving in Iraq. “Us going in 10 times a year to buy a factory that people want us to buy is not that big a risk.”
Mr. Rice expects investors — primarily sovereign wealth funds, Middle Eastern businessmen and high-net-worth Americans — and the fund itself to be rewarded amply for the risk of investing in Iraq.
The fund’s internal rate of return is targeted at more than 20%, and management takes a 2.5% fee and a 20% cut of the profits.
But investors should look carefully before they leap into the Marshall Fund, said Tom Orecchio, principal and vice president at Modera Wealth Management Inc. of Old Tappan, N.J., who specializes in alternative investments for high-net-worth investors.
“It has promise, but there’s still a lot that can go wrong,” said Mr. Orecchio, whose firm has approximately $450 million under management.
“It’s still unsettled in Iraq, and investing a large sum in something like this could be unwise. But if you are an experienced private-equity investor and have an appetite for risk, I would understand considering investing a small portion of your wealth.”
One of Mr. Rice’s New York colleagues with Rockville, Md.-based Convergent was also somewhat skeptical at first.
“It seemed like such a reach,” said Jamie McLaughlin, a managing director at Convergent, which has approximately $16 billion in assets under management. “But in the course of 12 months, look what’s happened there.”
However, Mr. McLaughlin added, he never questioned Mr. Rice’s commitment to the project.
“His eyes light up when he talks about Iraq,” Mr. McLaughlin said of Mr. Rice. There’s an old-fashioned earnestness about Dan, and he’s clearly following his passion.”
E-mail Charles Paikert at cpaikert@investmentnews.com.
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It’s the economy, stupid
Apr 16th 2009
From The Economist print edition
American investors attempt to spur Iraq’s private sector
Out with the tanks, in with the tomatoes
IN 2005 on a dusty road in Tuz, Iraq, an American solder was killed by a roadside bomb. His fellow soldiers soon discovered that the assassin was no hardened terrorist, but an unemployed father of six who had been paid $200 to plant the explosive. Such situations are not uncommon in Iraq, where high unemployment spawned many “economic insurgents”—often unideological Iraqis in need of cash, who became easy recruits. It was, in part, in response to examples like this that a trio of former military officers created the Marshall Fund, a private-equity fund making only non-oil investments in smallish firms in Iraq. “Without thriving businesses and the jobs they create, Iraq will never be stable,” says Dan Rice, who founded the fund along with Wayne Culbreth and Andrew Eberhart. Late last year it closed on its first investment, a tomato-processing plant in the northern region of Harir.
It is profit, not patriotism, that most excites Mr Rice about Iraq. In this, he is not alone. Several multinational companies, from GE to Daimler Benz, have opened up shop in Iraq since 2007, when the country started to become safer as a result of America’s military surge. Luring these companies to Iraq are its huge reserves of oil, abundant water supplies, fertile land and strategic location. Then there are Iraq’s 30.7m citizens—all potential customers in a new consumer economy who “need and want everything from televisions to washing machines,” says Robert Kelley, one of a group of investors that is building a $120m luxury hotel in Baghdad.
That said, the insurgency in Iraq, though diminished, continues to flare. The country’s experiment with private enterprise is untested. Under Saddam Hussein’s dictatorship, the state controlled everything from interest rates to jobs at the bloated state-owned enterprises (SOEs) that dominated the economy. America began paving the way for a free market in Iraq as soon as Baghdad fell in 2003. The temporary American government abolished tariffs, freed interest rates, cut taxes and stitched together a patchwork of market-friendly bankruptcy and other rules. It also, in effect, shut down Iraq’s SOEs by restricting their access to cash, cutting employees’ pay by 60% and barring the government from doing business with them.
But a private sector failed to take root. In 2006, with unemployment and underemployment in Iraq well over 50%, according to government estimates, the American administration changed course. It created the Task Force for Business and Stability Operations in Iraq to jump-start the private sector, this time from the bottom up. The hope was that helping to create self-sustaining businesses and, with them, jobs, would give Iraqis—including economic insurgents—a stake in the country’s stability. It started by ensuring that American contracts went directly to Iraqi businesses. Since 2006, $2 billion of American contracts have been signed with over 5,000 private Iraqi firms. Next on the agenda was to undo some of the damage from earlier American policies. The Task Force received $50m in both 2007 and 2008 to restore production in Iraq’s 60 SOEs, some of which were running at 10% of capacity or less.
The Task Force’s most difficult job, however, was to find companies and investors to put capital and know-how into Iraq’s SOEs and private firms. It began arranging visits to Iraq for potential investors from around the world. It provided transport, security, food, offices and accommodation in Baghdad’s green zone, even today the only part of Baghdad where visitors from the West are reasonably safe. And it made introductions to government officials and potential Iraqi business partners.
The scheme has already notched up a few successes. Take Iskandiriyah, a manufacturing town. The Task Force arrived in late 2006 to restart the many factories once run by two SOEs there. Today they are producing machine parts, trailers and machinery for the oil industry. Case New Holland, a maker of construction equipment owned by Italy’s Fiat, began assembling farm tractors in 2007. In total around 5,000 Iraqis are back at work in Iskandiriyah’s two SOEs. The town is considered stable.
The Task Force also helps smaller investors put capital to work in Iraq. Consider the Marshall Fund’s $6m investment in the Harir tomato-paste factory, for example. Iraq imports $100m of tomato paste a year, even as its tomato farmers let their excess harvest rot on the vine, because Iraq has no way to turn tomatoes into cans of paste. The Marshall Fund’s investment in a tomato-processing plant not only gives factory workers a job, but gives tomato farmers a bigger market and shopkeepers a locally made product. “And because we expect to make a solid return—it’s a win, win, win, win,” says Mr Rice.
Last year foreign companies invested $910m in private Iraqi joint-ventures. Individuals and investors such as the Marshall Fund put in another $500m for start-ups. Will they reap profits or become a cautionary tale? As with many things in Iraq, it is too early to tell. Most investors still consider the country to be far too risky. The drop in oil prices is already causing a budgetary squeeze for the government, which has had to stop recruiting police and military personnel and reduce weapons purchases. The withdrawal of American troops could leave behind a dangerous vacuum. The Task Force’s aim is for it be filled by the private sector, not insurgents.
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Fund of the week: high stakes and big rewards in Iraq
Nov 21, 2008
Björn Englund, 40, is no stranger to conflict. A former warrant officer, the Swede served as a UN peacekeeper in Lebanon and Kuwait more than 20 years ago. But now he’s got an even bigger fight on his hands. As manager of the $23.6m Iraqi-focused Babylon Fund, he’s trying to convince people that Iraq is a plausible long-term investment.
Launched in September 2006, 30% of the Babylon Fund is invested in bonds, including Iraqi sovereign debt. He lists the 5.8% coupon, maturing in 2028, as one of his favourites. The other 70% is in equities, half of which are foreign firms with significant operations in Iraq, including several oil groups. But with trading volumes on the Iraqi stock exchange expected to rise by 150% next year as a new electronic trading system is installed, he expects to focus more on Iraq-listed stocks in the future, particularly Iraqi oil services and telecommunications firms. “There are three Iraqi mobile-phone licences, and in order to get one you have to list 25% of your shares on the market. It’s the best-performing sector in Iraq right now, because even the militants don’t want to take down the masts.”
So far this year, the fund is down 9.4% – not bad compared to the global markets’ performance. While trouble looms in the near future (“there are upcoming elections in six to eight months, so there could be a lot of targeted bombings”), he says the security situation has improved, with troop deaths and injuries down 90% on last year. The minimum investment is $100,000. Wealthy investors with a high appetite for risk who share Englund’s optimism on Iraq will be hard-pushed to find a purer play on the country.
Contact: +352 335502
The Babylon Fund’s top ten holdings
Warka Bank
Qurain Holding
North Bank
Investment Bank of Iraq
Addax Petroleum
Iraqi Middle East Investment Bank
Bank of Baghdad
DNO AS
Commercial Bank of Iraq
Baghdad Soft Drinks
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