Iraq-Focused Hedge Fund Up 20% YTD

Nov 29 2007 | 8:29am ET

Subprime short sellers and credit-focused hedge funds are not the only ones in the black this year: the Babylon Fund gained a further 2.7% last month pushing its year-to-date returns to 20.1%. 

In October, the $13.8 million hedge fund, structured as an open-ended mutual fund that invests in large-cap Iraqi-dependant securities, placed the bulk of its bets on equities (71%) followed by bonds and deposits at 16% and 13%, respectively, according to its latest performance report. But despite its low correlation to Western markets, portfolio manager Björn Englund noted a peculiar phenomenon on the Iraq Stock Exchange last month.

“For example, in October, more than 60% of the equity trades made on the ISX were directed from abroad - as a couple of large-sized deals in banking stocks raised the overall volumes, contracts and values traded,” wrote Englund in his latest investor letter.
“Adding up to the present cautious ‘wait-and-see’-stance on the market floor have been factors such as lack of momentum, few company updates, and the flight of monies to the closest alternative asset class in NID: Govie T-bills yielding 18-22% in (hard) dinar [currency].”

Englund added that he believes this to be a short-term phenomenon and remains optimistic for the future of the Iraqi market and the ISX in terms of a push for more “longer opening hours, less daily hassle, a relatively more international mind-set and understanding among managers, healthier balance sheets, and even growing business confidence (the feel-good factor) - within most sectors and industries.”

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