Despite hurdles, Iran fund seeks €100 million

Azadi Monument-TehranTehran-based asset manager Griffon Capital says it hopes to raise €100 million ($108 million) this year for its newly launched fund investing in Iranian equities.

The firm is targeting its Cayman Islands-domiciled fund at institutional investors, high-net-worth individuals and family offices in Europe and the Gulf. The fund, like a similar product recently announced by Turquoise Partners and Charlemagne Capital, was launched after the European Union agreed on January 16 to lift sanctions on Iran, which means foreign investors are allowed to buy Iranian stocks for the first time in years.

Payam Malayeri, head of asset management at Griffon Capital, says the Tehran Stock Exchange is cheap compared to emerging and frontier markets, with an average price-to-earnings ratio of stocks on the exchange of about 5.5. Despite a rally of 10% following the January 16 announcement, the exchange remains attractive, he says.

“The market will be volatile in the short term,” he tells Funds Global MENA, “but earnings will not get any worse. They are only going to improve. The decorrelation of Iran to the rest of the world will continue and we expect returns to be significant.”

Malayeri says foreign investors only account for about 0.5% of equity ownership in Iran. As well as the Tehran exchange, there is a smaller bourse in Iran called Iran Fara Bourse, which is meant for smaller companies and is similar to the UK’s Alternative Investment Market (AIM). The Griffon Capital fund will invest in both.

Although there is excitement about investment in Iran, many potential investors are cautious, not least because sanctions against some named institutions and individuals in Iran remain in place and US sanctions have only been suspended, not lifted. Malayeri says his firm has devised a “sanctions-compliance checklist” in partnership with lawyers Herbert Smith Freehills that will be used by Griffon Capital’s Tehran-based investment analysts to examine each potential investment. The fund will not be open to US clients.

The Central Securities Depository of Iran will provide custody to the Griffon Capital fund. As yet, none of the major global custodian banks are present in the country, which, according to some sources, may prevent Iranian equities become anything more than a niche asset class in the short-term future.

©2016 funds global mena

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