The EFG-Hermes Persepolis fund will be registered in Bermuda and listed on the Dublin stock exchange, which trades several international emerging markets funds. The Iranian fund will have a minimum size of Eur 20 million ($18 million) and will be capped at Eur 70 million ($64 million).

The fund is aimed at Iranian expatriates in Europe and the region, Arab investors, in particular from the Gulf, and European institutional investors.

The bulk of the funds will be invested in TSE-listed companies. The remainder will go into government participation certificates, the main fixed-interest instrument traded in Iran. The one-four-year paper provides an average annual yield of 17 per cent.

'There are certain economic and political risks involved. But on the other hand, the potential is huge,' says an Atieh Bahar executive. 'The TSE has been the world's second fastest growing stock exchange in 2000 and 2001.' Despite the rapid growth, most companies still trade at low valuations, says the executive.

Funds will be channelled into Iran through its free trade industrial zones, located on the islands of Kish and Qeshm and in Chabahar on the southern coast.