Believe it or not, there is a fund dedicated to investing in Iraq. In spite of fears that the country is either in the middle of a civil war or about to fall prey to one, the Babylon Fund was launched in September 2006 and is now handling assets worth about $8m.

The fund was set up by Luxembourg-based Godvig Capital Management, and is managed by Björn Englund, who served in Iraq with the Swedish army during the Gulf war of 1991 and went on to become a trader before setting up a “dog fund” for out-of-favour companies in the S&P500 index.

Godvig has a director based in Baghdad, and another based in Stockholm who travels to “the safer bits of Iraq”, according to Bob Torkelund, a Godvig director.

He says the fund could get bigger, although it will still be small compared with most others. “We think we can handle about $20m,” he says. At that point the open-ended fund would stop raising money for a while, although the long-term aim is to open it again provided its investments are successful and it offers a reasonable level of liquidity.

He says there are two big investment themes for the fund: the reconstruction of Iraq and exposure to oil prices.

Mr Torkelund says the fund is aiming to achieve a return of 20 to 25 per cent a year within 10 years. In its first few months it got off to a more modest start, with a 2.4 per cent return in the final quarter of 2006.

The fees are closer to hedge fund charges than typical management fees for an open-ended fund. The annual management charge is 2 per cent and there is also a performance fee of 20 per cent for returns in excess of 8 per cent.

There are four types of investment the fund can make and it aims for each type to account for a quarter of the portfolio. The first is shares on the Baghdad stock exchange, which is small, volatile and trades for four hours twice a week. Its volumes are low – if shares worth $4m change hands, Mr Torkelund says, that would be “a big day”. The fund also faces regulatory barriers to investing on the Baghdad stock exchange.

The second type of investment is Iraqi government bonds, which currently compensate investors for the risk they are taking by paying out at an annual rate of about 8 per cent.

The third type is companies in nearby countries such as Egypt, Jordan and Kuwait. To be eligible for the fund, these companies must do most of their business in Iraq.

The fourth area is international companies such as Halliburton, which do a significant amount of business in Iraq.

In total, Mr Torkelund says there are about 200 companies that fall into one of the three equity categories outlined above, including “90 to 100 interesting ones”.

As befits a manager of a fund with three-quarters of its assets in equities and one quarter in bonds, Mr Englund’s main background is in equities but he also has experience of trading bonds.

The minimum investment is $100,000, with subsequent investments from $10,000 upwards. The $8m in funds raised so far come from just eight investors.

Copyright The Financial Times Limited 2018. All rights reserved.

Comments have not been enabled for this article.