Ulan Bator has become the latest destination for hedge fund managers, following the creation of the first offshore investment fund to be focused exclusively on Mongolia. The Mongolia Discovery Fund has been established by Alisher Djumanov, formerly of Uzbek investment banking firm Asher Group, who has raised an initial $5 million of seed capital for the new fund, which is being launched by newly established management company Silk Road Fund Management.
Djumanov is hoping to emulate the success of his Central Asia Opportunities Fund, which he launched in November 2006 with just $1 million but which now has more than $65 million under management. The fund invests in Kazakhstan, Uzbekistan, Kyrgyzstan, Armenia, Azerbaijan, Ukraine, Mongolia, Georgia, Turkmenistan and Tajikistan. Thanks to strong regional growth CAOF has returned 85% since inception – making it the best-performing central Asian regional fund in 2007.
Djumanov says he hopes to make the first close on the Mongolia Discovery Fund at $50 million and is ultimately seeking $100 million by the end of this year. He is targeting returns of 50% after the first year, when the fund should be fully invested. Mongolia Discovery Fund will invest primarily in locally listed equities and global depositary receipts. Alisher Djumanov, one of Djumanov’s colleagues, says that Khaan Bank, one of the country’s top banks, is expected to list on the London Stock Exchange this year, and there are more than a dozen internationally listed mining companies whose primary assets are based in Mongolia, involved in the production of gold, copper, coal and uranium.
Given that the market capitalization of the bourse in Ulan Bator is only $600 million, there are few liquid stocks. However, Djumanov says that there are several promising private companies that are likely to look to go public, and the fund will therefore also make private placements and pre-IPO investments.
Djumanov is also launching Silk Road Property Fund with an expected first close at $20 million in February. This will make real estate investments across central Asia and the Caucasus.
The move to establish the country’s first hedge fund comes as the Mongolian banking sector is showing signs that it has recovered from a series of crises that rocked it in the past decade. “The credit outlook is stable as the economy continues its upward trend, driven by the global commodities boom and overall development,” says Cherry Huang, a senior analyst at Moody’s Investors Service in Hong Kong. She cautions, however, that risks could build as corporate lending rises quickly and the real estate market booms. Bank financial strength ratings from Moody’s average D, foreign currency deposits B2 and local currency deposits Ba1.
