- The Washington Times - Monday, June 12, 2006

SEOUL

Looking to add a little flair to a staid portfolio of gold bars, government bonds and safe-haven currencies like the Swiss franc?

Then consider getting in on the ground floor of what by any measure is one of the world’s most challenging investment destinations: North Korea.

Chosun Development & Investment Fund LP of London is trying to raise $50 million to exploit, as it says on its Web site, “opportunities in the Democratic People’s Republic of Korea … one of the last frontiers of global investing.”

Nestled in a politically volatile corner of East Asia, North Korea is an outpost of totalitarian communism, its dictator, Kim Jong-il, seen by some as a brutal madman bent on developing nuclear weapons.

Its economy, beset by chronic power shortages and still recovering from a deadly famine in the 1990s, is widely regarded as being decades behind the industrialized world. Nearly 20 years ago, North Korea even defaulted on its foreign bank loans.

Such obstacles haven’t deterred ChosunFund, as it is known for short. (Chosun is what North Korea calls itself.)

ChosunFund says it is examining areas such as minerals, energy and defaulted debt. Officials refused to offer details regarding specific investments and potential partners in North Korea amid ongoing discussions with authorities there.

Nor were they ready to reveal the operational mechanics of the fund, such as how returns would be calculated in a country with no Western-style capital markets.

The fund’s manager, Anglo-Sino Capital Partners Ltd., has received regulatory approval from Britain’s Financial Services Authority, providing the green light to begin soliciting investors.

“The interest has been quite phenomenal,” said Colin McAskill, chairman of Koryo Asia Ltd., the fund’s exclusive investment adviser. “We’ve had an enormous response. All over the world, even from the United States.”

Mr. McAskill wouldn’t comment on how much, if any, of the funding target has been raised or provide specifics on the identity of potential investors, but said the goal may be exceeded.

He stressed, however, that North Korea is not for amateurs.

“We’re looking for professional investors who are aware of the risk and know North Korea,” he said. “We’re not looking for retail investors.”

He spoke by telephone from London ahead of a planned trip yesterday to South Korea with other ChosunFund officials, including Lynn Turk, a former U.S. diplomat with expertise in North Korean affairs.

Meetings are planned with state-run Korea Development Bank, the Unification Ministry, which handles North Korea policy, and the Ministry of Commerce, Industry and Energy, he said.

ChosunFund, which also boasts the participation of Robert “Robin” Fox, a former group vice chairman of investment bank Dresdner Kleinwort Benson, is cognizant of potential pitfalls.

“The management, partners, and directors of the fund understand the risk inherent in dealing with North Korea,” according to the Web site. But they also think that it “can achieve returns commensurate with that risk.”

Decades of communism have left North Korea with a moribund economy, estimated at $21 billion. Capitalist rival South Korea’s is a dynamic $680 billion.

Still, North Korea has taken tentative steps in recent years at liberalization, introducing limited market reforms and encouraging business projects with China and South Korea.

Efforts by China, Japan, Russia, South Korea and the United States to persuade North Korea to abandon its nuclear development, however, have stalled amid Pyongyang’s anger at the U.S. over financial restrictions imposed for suspected counterfeiting of U.S. currency and criticism of potential human rights abuses.

ChosunFund remains optimistic, saying in a press release that it sees “very significant return on investment after the expected resolution of the current nuclear issue and the resulting economic expansion of Northeast Asia’s last ‘tiger.’”

Mr. McAskill said tapping the North’s abundant natural resources holds particular promise.

“They have gold, silver, zinc, masses of iron ore, all that the rest of the world, particularly China, needs right now,” he said, adding that the North has the world’s largest deposits of magnesite, used as an insulating material in steel production.

Peter Beck, Seoul-based North Korea watcher for think tank International Crisis Group, said efforts such as ChosunFund’s to do business with Pyongyang are “encouraging.” But he stressed that when it comes to North Korea, the potential for misunderstanding never can be discounted.

It’s an open question whether the North Koreans “really understand what it is that investors expect to be able to do and the returns that they’re going to expect,” Mr. Beck said.

Despite the challenges, Mr. McAskill, who said he has dealt with North Korea for decades and is “in touch at quite a high level,” is cautiously optimistic.

As with any market, there’s a political risk,” he said. “We are relatively confident that the [political] situation will work itself out.”


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