Idea Brunch with Scott Osheroff of the AFC Uzbekistan Fund
Welcome to Sunday’s Idea Brunch, your interview series with great off-the-beaten-path investors. We are very excited to interview Scott Osheroff!
Scott is currently the chief investment officer of the AFC Uzbekistan Fund, an Uzbekistan-focused investment fund founded in March 2019. Prior to leading the AFC Uzbekistan Fund, Scott restructured a Burmese mining conglomerate’s portfolio of assets, based in Yangon, Myanmar. Prior to this, he worked with a New Zealand-based private equity outfit where he sourced private equity deal flow in Asian frontier markets and co-founded a publishing company focused on providing financial news coverage in frontier markets. He has spent the last fourteen years living in Asian Frontier markets and currently resides between Tashkent, Uzbekistan, and Istanbul, Türkiye.
Scott, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background and why you decided to launch the AFC Uzbekistan Fund?
I’m originally from Los Angeles, and while completing my undergrad in Boston in 2012 I realized the competitive edge in investing in parts of the world few were paying attention to. This attracted me to Asia, specifically Asian frontier markets, whose “baby-boom” generation was coming of age and driving GDP growth, consumption, productivity etc.
So, after graduation I booked a one-way plane ticket to Singapore, and snaked my way throughout Southeast Asia for three weeks before settling into Mongolia for the better part of two years, on and off between there and Cambodia. I was working with a private equity outfit sourcing frontier market deals.
Come 2013, and after meeting Thomas Hugger, Founder of Asia Frontier Capital, on a few occasions across the Asian frontier, I joined the company as an analyst for our AFC Asia Frontier Fund, covering Mongolia, Cambodia, Laos, and Myanmar (living between Cambodia and Vietnam). During this role, I took a separate job between 2017 and 2019 in Yangon, Myanmar, leading the restructuring of a local mining conglomerate where I cleaned up some of their industrial and hospitality businesses, preparing them for sale.
Then, in May 2018, I was invited to join an investor tour of Kazakhstan. While in the region I added Kyrgyzstan and Uzbekistan. When I arrived in Uzbekistan, roughly 18-months after the former President, Islam Karimov, passed away, I was shocked to find no one paying attention to the country of 34 million people (now 39 million), with a formal economy of USD 80 billion (now USD 145), rich endowments of gold, copper, and uranium, a property market with 25% cap rates, and an equity market with companies growing several hundred percent per year, while trading at P/Es in some cases less than 1x and dividend yields pushing 50%. I had to question if I was being led astray through all of my meetings, for it felt a bit like an episode of the Truman Show. No one was paying attention to the country upon its opening; meanwhile, when there’s a volcanic eruption in Iceland, for example, you hear about it on global news within 30-seconds. The opportunity was fascinating.
At that point, having lived between Mongolia, Cambodia, Myanmar, and Vietnam, my only question was, would the country shut again? President Mirziyoyev, the former Prime Minister, kept promising the world that this was a “new dawn” and with my second visit to the country later that year it was increasingly obvious they were serious. So, we began investing into the market even though there were still capital controls. However, the Central Bank and development banks had all confirmed to me they were in the process of being eliminated. Finally in early March 2019 capital controls were eliminated and we were the first foreign investor to repatriate proceeds from share sales on the Tashkent Stock Exchange back to Hong Kong. By month-end we launched the AFC Uzbekistan Fund.
Why is now a good time to be bullish on Uzbekistan?
Since the beginning of my time in Uzbekistan, my thesis for what needs to happen for the market to become attractive to investors has been that inflation needs to slow (from 15.2% in 2018 to 6.4% in July 2026). As inflation slows the currency has stabilized (from double-digit depreciation in 2018 to approximately 7% appreciation in 2025, and YTD further modest strength versus USD). This has brought unofficial savings into the banking system, firstly into term deposits, though rates have fallen from 26% to the high teens. And for the past two years we have seen capital flow into the corporate bond market. Where previously companies struggled to raise USD 2 million, you now have companies raising USD 20 million+ at a time, and coupons have decreased from a high of 30% to the high teens/low 20% range.
This confluence of events should enable the Central Bank of Uzbekistan to cut its policy rate later this year (barring any further geopolitical issues) from 14% toward 13%, helping to further decrease the cost of capital. Naturally, as the attractiveness of fixed income instruments, at this point, rather quickly decreases (though still highly attractive), we are seeing an inverse relationship in the listed equity market which over the past eighteen months has been in a significant uptrend.
One of the catalyzing events for the market and why now is a good time to be bullish on Uzbekistan is that in May 2026 the Uzbekistan National Investment Fund (UZNF), managed by Franklin Templeton, had an IPO and dual listing on the London and Tashkent Stock Exchanges. This appears to have woken up many investors and has made Uzbekistan an increasingly more mainstream frontier market opportunity. JPMorgan for example is getting onboard as they plan to include Uzbekistan’s som-denominated sovereign international bonds in their “Government Bond Index-Emerging Markets (GBI-EM)” from 30th September 2026.
Further, it used to be a challenge to open a local brokerage account (still not the easiest in the world) due to the infrastructure. Now, foreign retail can open accounts online in about 5-minutes and Bank of Georgia, OTP, and Raiffeisen are all offering custody in the local market.
Liquidity is picking up and the next catalyst is going to be more IPOs. The capital markets infrastructure is in place, investors are increasingly active in the market, and the next focus is product (IPOs), both of additional SOEs and from the private sector, something I see potentially happening from next year.
Can you tell us a little more about your research and investment process? What makes you different than other frontier market funds?
I’m not sure if it makes us different, but I’ve lived in Uzbekistan for over five years. Not only have I visited our portfolio companies’ operations and met with management on multiple occasions over the years, but I’ve networked into broader society which has provided immeasurable benefits to my understanding of the country and culture. My relationships have allowed us to do several significant off-market equity trades with large state entities and private companies in the country that would otherwise not have been available if I wasn’t based there.
Research-wise, my focus in the early years was to meet as many listed companies as possible and get the proverbial “lay of the land”. The country was still heavily state-subsidized, so you had sectors like vegetable oil processors that received subsidized oil seeds; those subsidies eventually were eliminated making the entire sector, and about 20 listed companies loss-making. The same happened in oil and gas logistics as the Asian Development Bank helped facilitate the restructuring of the state oil & gas company, Uzbekneftegaz making service providers and metal fabricators loss-making overnight. Therefore, my focus has been on understanding the intricacies of the economic reforms, the subsectors of the market that would be impacted (positively or negatively) and positioning accordingly.
As part of this filtering process, I’ve selected the “must-own companies” in the country on a mix of quality management, profitability, leverage to economic growth, and of course attractive valuations. The market being small and the AFC Uzbekistan Fund being a first mover, I wanted to own the “blue-chips” of Uzbekistan and have concentration, for any foreign investor flying to Tashkent looking for what to buy is likely to be directed to the funds core holdings. With growth being strong and valuations attractive, the goal was to benefit from companies that have the most upside in a re-rating scenario, and getting positioned ahead of these flows.
You have worked across Mongolia, Cambodia, Myanmar and other frontier markets. What are the ingredients for success when investing in frontier markets? What similarities and differences have you observed among the countries you’ve worked in?
I think most markets are the same, honestly, whether developed or undeveloped markets. In frontier markets one needs to understand the societal trust dynamics from a macro standpoint and on a micro-market level, liquidity. There are some amazing opportunities but they are illiquid which means one can’t either build size or sell on the spot with orders needing to be worked over days. That again is the opportunity, to invest in participations of a business as frontier market investing is about investing, not trading.
One key ingredient for success is actually hopping on a plane to the location, meeting management teams and visiting facilities. But equally important is spending some time to learn about the culture, learn some of the language, and how the country function etc. This will give an investor a much better chance of understanding local mindsets and the pace at which business is done and how it’s done (i.e. very slowly in Myanmar and much, much faster in Cambodia and Vietnam).
How important is “on-the-ground research” in frontier markets like Uzbekistan? Can you share some examples where being physically present in the country has led to an edge?
On the ground research across frontier markets is paramount. Because in many instances there just isn’t that much information on some of these countries you can easily obtain without being there.
For example, the opportunity that caused us to start investing in Uzbekistan after my first trip in 2018 is that after visiting several companies with my broker, at dinner in the courtyard of a great Georgian restaurant in Tashkent I started interrogating him about valuations. He opened up his laptop and showed me the past several years of performance for the 50 or so most liquid companies on the Tashkent Stock Exchange. The average annual bottom line growth rate was probably in the 20-30% range with those at the top (such as the Uzbek Commodity Exchange) growing 400-600%, and paying double-digit dividends while trading at low single digit P/E’s.
Being early and even something as basic as discussing financials over dinner allowed the AFC Uzbekistan Fund to acquire significant blocks of shares in the “blue-chips” of the country before anyone was paying attention and which simply can’t be done in today’s market without pushing prices significantly higher.
Another example was being at the EGM of a consumer goods company that voted to do a stock split during the meeting. In Uzbekistan, the ex-date for dividends and corporate actions, such as stock splits, is 5-days before the meeting, but the split wasn’t announced beforehand. By living in the country and being in attendance at the meeting I was privy to the vote to split shares and had the opportunity to sell a part of our position on the market at the previous day’s closing price which of course hadn’t yet adjusted for the share split, making a several hundred percent profit in the process.
Who are some of the management teams you admire most in Uzbekistan? Generally, do you find that management teams act in the best interests of shareholders?
Bar none, the best management team of a public company in Uzbekistan is that of the Uzbek Commodity Exchange. They have the best investor relations/engagement of any public company, are transparent and focused on shareholder returns through continually strong dividend payout ratios. Generally, yes most of the companies we have dealt with over the years have acted in shareholder’s best interest. The financial regulator over the years has also gotten much stricter in enforcing legislation on minorities behalf which has benefitted the fund greatly.