Turquoise raises Iran-focused PE fund

The Tehran-based firm began meeting European investors last year ahead of the end of international sanctions on Iran announced this week.

Tehran-based Turquoise Partners is raising a $150 million private equity fund to invest in Iran and had already started talking to investors in Europe in anticipation international sanctions on Iran would be lifted, Turquoise head of private equity Jhubin Alaghband told Private Equity International.

Turquoise has signed a memorandum of understanding with an unnamed Swiss bank to form a joint venture to manage the fund, which has yet to be officially named.The bank held a European roadshow last month and has already secured soft commitments of $30-40 million from high net worth individuals (HNWI) in Europe. It spoke to investors in London, Geneva, Holland and other European cities.

“We have some small commitments that were dependent on the sanctions [news],” Alaghband said.“Appetite from Europe is greater than the rest of the world.”

He added that HNWIs and individuals would move quicker into Iran, while “institutions will come in later.”

The fund is not targeting Iranian investors at this stage.

On 16 January international trade and financial sanctions imposed on Iran were lifted as a result of the implementation of a deal between Iran and the US, UK, China, France, Germany and Russia regarding its nuclear programme agreed in July. Trade sanctions imposed by the UN, US and EU, tightened over time, have isolated Iran and curbed its ability to trade oil on the international market.

Attractive sectors include fast moving consumer goods (FMCG), which capitalises on Iran’s population of about 80 million people, of which half are under 30 years old. In terms of company size, the fund would target “larger” enterprises, he said.

“PE is quite new in Iran. It is going to be an interesting discussion. We need to see which size companies we can engage. We have a few lined up but it is early days. We have identified a couple of targets. FMCG, pharma and real estate are more interesting,” Alaghband said.

“The deal flow is the least of my worries. The Iranian economy is thirsty for capital. It’s not challenging to get [deals] lined up, but it depends on when the investors come in,” he noted.

Alaghband described the removal of sanctions as “extremely significant” and necessary for any capital flows into the country.

The next milestone will be for the domestic banking system to be connected to SWIFT, to which the electronic banking payment system has indicated there is now no legal barrier, Alaghband said.

Turquoise has a 10-member private equity team, which has been active in public equity investing on the Tehran Stock Exchange (TSE) for the past 10 years. The firm is constantly meeting with Iranian professionals with international experience interested in working for them, Alaghband said.

Alaghband conceded that investors a lot of bureaucratic and regulatory obstacles. “We will be paving the road as we go along,” he said.

 
Settling down

Farbod Sam of Tehran-based asset manager Canton Hermidas, which has a private equity arm focused on investing in Iran, CIS and across the Middle East, said that following the lifting of sanctions, in the short term, “the market needs to settle and the framework has to adapt.”

Several areas remain unclear, notably the local banking system that has not kept pace with the increase in compliance and anti-money laundering regimes abroad, he said. “It’s not the time for the likes of HSBC and Deutsche Bank to get involved. It will be the second tier banks from [regions such as] the Nordics or Spain.”

Other obstacles include currency fluctuations and the operation of two currency rates (official and unofficial), which is being addressed by the central bank, shrinking revenues due to the economy’s reliance on its natural resources, and the impact of global downturn, Sam said.

Iran also lacks any regulations governing private equity funds, although Sam noted that the Securities Exchange Organisation under the TSE, which governs funds, is developing a framework for venture capital which may extend to private equity.

Over the longer term, the development of the local private equity industry will depend on government policy and its protection of investors, he noted.

There have been many foreign delegations travelling to Iran and those family offices and HNWIs with local partners or who have renewed existing relationships will be the “first to jump in.”

“There are a lot of private deals, and many investors, thinking Iran could be another UAE or Qatar success story, are travelling here,” Sam said.

But the local PE market lacks a track record and “we are two to three years off institutional investment. You need to see how the market will perform.”

Global auditing firms have also been excluded from the Iranian market by sanctions. “A lot of institutional investors will be comfortable once they see annual reports audited by the big firms.”

“We are far away from BlackRock or KKR,” he said of big private equity firm interest.

Canton Hermidas invests off its balance sheet with some commitments from family offices and HNWIs. It has set up Silicon Bazar, an offshore platform to develop technology companies, which it will launch in a month or two and has yet to deploy any capital.

Its private equity plans depend on whether the economic environment in Iran “looks secure enough” over the next year, otherwise it will divert to other markets, Sam said. The firm, which has Iranian and European managing partners, is also setting up an office in London from where it will target frontier markets.