Via The Silk Road Intelligencer, an interesting look at The Sturgeon Fund, launched in December 2006, to target the “Turkestan” region, comprising Central Asia and the Caucasus.  As the article notes:

“…The fund gives exposure to markets that on the one hand are not explored by mainstream funds, and on the other that, with the international commodity boom, will do well because of their natural resources,” says Cappello, a former analyst at asset management firm Notz Stucki.

With an initial $5m invested by Cappello and a handful of international institutional investors, the fund has since grown to $30m. Geographically, its main focus is on Azerbaijan and Kazakhstan. However, Sturgeon already has exposure to both Georgia and Russia, and is looking at several potential investments in Uzbekistan. Future investments in Tajikistan, Turkmenistan or Kyrgyzstan have not been ruled out.

Kazakhstan, Cappello says, has the region’s only effective stock market. In Azerbaijan, by contrast, “there is no equity market,” he says. “That is a pity, because Baku is very much a Silk Road city with a real trader mentality. Having said that, there are opportunities on the private equity and fixed income sides. While we would avoid natural resources, we think every sector is interesting – consumer and banking in particular.”

Sturgeon has a three-pronged investment strategy, making a combination of equity, fixed income and special situations investments. The composition of its portfolio varies according to market conditions, but typically fixed income is the largest part, while special situations investments – through which it has built up a portfolio of illiquid and private equity investments – are capped at 25% of the fund. The firm has started making a fourth type of investments, having set up a dedicated real estate fund – Sturgeon Property Fund. This has not yet been opened to third party investors, but will be in future. “There are a lot of opportunities in specific markets across the region. We are especially interested in industrial and logistics real estate. Tourism could be interesting depending on how developed the local infrastructure is, and although there is an over-supply in luxury residential property, we are interested in niche plays in the residential market,” says Cappello. The deepening of the credit crunch to a worldwide emergency crisis, following the collapse of Lehman Brothers in September, has thrown into question some of the arguments for investing in emerging markets, with easier pickings among the now struggling developed economies. The Rencasia Index, which tracks the most liquid equities in Central Asia, has dropped by 50% since May, while exchanges in Moscow and western financial centres have plummeted. However, this could lead to new opportunities in the region. “High quality bonds, for example, are currently trading very low,” says Cappello. “There are some very interesting opportunities right now, even though frontier markets are generally seen as less sexy than they were.”