AFC Iraq Fund Investment Strategy
The AFC Iraq Fund offers investors the opportunity to capture Iraq’s post-conflict recovery potential, and the transformation of its economy following the return of stability in its territory. The fund aims to achieve long-term capital appreciation for investors by capturing the value in growth companies over the next 7-10 years, predominantly targeting companies leveraged to Iraq’s post-conflict recovery and growth trajectory. Iraq has a low correlation with global, emerging and frontier markets, and thus provides a significant diversification opportunity to investors. The fund’s investable universe consists of locally listed companies with their principal business activities in Iraq and foreign-listed companies with the majority of the business in Iraq, including the Kurdistan Region of Iraq (KRI).
The essence of the AFC Iraq investment thesis is arbitraging the delta between the real Iraq risk, high as it is, versus the perceived risk, which is much higher still. This delta is a function of an asymmetric information flow on Iraq that is bound to narrow as this information flow begins to reflect the country’s real developments. The risk-award proposition of the AFC Iraq Fund argues that as this delta narrows, asset prices – priced at the perceived risk – should rise, reflecting the real risk and the country’s ongoing economic transformation.
The fund’s core thesis is that Iraq offers a compelling growth story as a country endowed with significant natural resources – holding the world’s fifth largest proved oil reserves and twelfth largest proved natural gas resources – with a large young population of 46 million (2024e), with about 65% of the population under the age of 30. The country’s potential was held back, and much of its infrastructure was destroyed by over four decades of conflict, with the last vestiges of the country’s long conflict ending in 2018.
Since its launch, the fund focused on capturing the returns of the long-term drivers of the transformation of the Iraqi economy post-conflict, as stability offers individuals and businesses the opportunity to work, employ and spend, which would drive domestic consumption and investment. The three key drivers of this economic transformation are: the cumulative positive effects of relative stability; the move away from cash and informality that dominated the economy; and the country’s powerful demographics. Consequently, the fund’s core holdings are in banking, telecom and consumer staples.
In 2023, two of these drivers began to bear fruit, continued to evolve in 2024, and broaden into 2025. The first of which was the significant fundamental development that is accelerating the adoption of banking and bringing about a transformation of the sector and its role in the economy. The second was the cumulative positive effects of the relative stability that the country has enjoyed over the past few years as the last vestiges of the country’s long conflict ended in 2018.
The overarching theme is that both these two drivers are in the early stages of their transformation of the Iraqi economy, continuously boosted by the evolving third driver, resulting in a process that would unfold over the next few years, bringing with it economic growth that would feed into higher corporate profits, and ultimately higher stock market returns. Over the long term, we believe that the fund’s holdings stand to capture the returns of these drivers over the next few years in the same manner that they did in 2023 and 2024.
These dynamics were discussed in a virtual video pitchbook in December 2024.
Strongly influencing these long-term secular drivers is the country’s extreme leverage to oil prices, with changes in oil prices stemming from cyclical changes in world economic growth boosting or hindering these secular drivers. Thus, the negative impacts of the uncertainty over the direction of the world’s economy from the evolving U.S. tariff policies will be felt indirectly through lower demand for oil. Consequently, the negative effects of lower oil prices on the economy will become a headwind, reversing the positive tailwind of the past two years. Yet, the secular positives of the ongoing economic transformation should overcome the drag from the cyclical negatives and thus continue to drive the market’s direction.
The RSISX USD Index’s increases of 44.8% and 97.2% in 2024 and 2023 respectively, should be seen in the context of a market climbing out of a deep bear market following its January 2014 peak, in which the RSISX USD Index was down 25.4% in 2014, 22.7% in 2015, 17.4% in 2016%, 11.8% in 2017, 15.0% in 2018, 1.3% in 2019, and 5.4% in 2020 – for a cumulative decline of 66.6%. During these seven years, the market discounted all conceivable negatives that dwarf, by orders of magnitude, those that other global markets are in the process of discounting in the wake of the U.S.’s evolving trade policy.
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