Eurasia Capital Management (ECM) has created the first-ever Uzbekistan-dedicated hedge fund. The Uzbekistan Growth Fund was launched in September with initial capital of just $5 million but ECM founder and managing partner Alisher Ali Djumanov believes that the open-ended investment vehicle could grow substantially over the next couple of years.
"We think that there are at least $100 million of potential projects out there," says Djumanov. "We can have a meaningful impact in Uzbekistan with this dedicated country fund." The new fund will invest across a variety of asset classes, giving investors broad-based exposure to the Uzbekistan economy. "There is clear upside potential to Uzbekistan, it could be a $100 billion economy versus the $20 billion one it is now," says Djumanov. ECM will focus on five main areas. The first will be what Djumanov terms credit opportunities. "We are looking to take advantage of the lack of availability of bank financing in Uzbekistan – even major exporters struggle for working capital," he says.
Djumanov believes that ECM will be able to originate deals offering 20%-plus yields, with downside risk mitigated by being backed by property or other receivables or the option to convert the debt into equity stakes. The second investment focus will be on publicly traded equities. Although there are no internationally listed companies in Uzbekistan, Djumanov says that there is a healthy supply of locally traded stocks in high-quality companies with strong financials. ECM is also seeking to participate in the latest phase of privatization in Uzbekistan. "The Uzbek government is selling off small and medium–sized enterprises, which often have distressed financials, but have good land banks which are ripe for redevelopment," he says, adding that the authorities in Tashkent are encouraging industrial companies to move to the outskirts of cities, thus creating prime city centre development plots.
The next element of the fund will focus on property and property-related investments. "There are plenty of opportunities to work with local developers and buy into the still strong property cycle in Uzbekistan," Djumanov says. He adds that real estate valuations in Uzbekistan are relatively low compared with neighbouring Kazakhstan, while there is still strong demand, especially in the retail and office development spheres. "There are lots of renovation opportunities in Uzbekistan, which are easier to realize than greenfield developments."
Finally, ECM will also look at private equity and venture capital-type investments in the country. "If you have the right people, which we think we do, you can build meaningful businesses in Uzbekistan," says Djumanov. "What we like about Uzbekistan is the pool of entrepreneurial talent that exists there," he adds.