23 February 2004 02:25
Cash-under-the-mattress days are gone: The emerging and promising asset management business is being held back by restrictions on mutual fund investment and confusing state pension rules, writes Arkady Ostrovsky
Asset management is stilla new game in Russia.
Until recently the preferred and least risky method of managing funds among
Russians was to change roubles into dollars and stick them in a jar or under
a mattress. In a country where the government has destroyed people's
savings through devaluations, there were good reasons for this.
But in the past five years, as the currency stabilised and the economy
started to grow, Russian investors, attracted by annual returns of about 55
per cent, started to look for more efficient ways of saving money.
Elizabeth Hebert who heads Pallada Asset Management, said: "If you
simply left your savings in dollars, you would have lost 7 per cent last year
as a result of the rouble appreciation."
Russian businesses have also become more comfortable about letting third
party professionals manage their funds.
As a result Troika Dialog Asset Management, Russia's leading independent
asset manager, saw its assets double in each of the past two years. "At
the end of 2001 we had Dollars 125m (Pounds 66m) under management. Today we
have Dollars 500m - it has been a nice growth," says Tim McCarthy, chief
investment officer at Troika. This has been driven by institutional
investors, mainly corporate pension funds, and retail clients.
But despite this growth, the market remains tiny by international standards.
Ms Hebert estimates the total fund management industry is worth about Dollars
6bn.
However, only Dollars 2bn of this money is managed by independent fund
managers. The rest stays with Russia's largest oil and gas producers,
which have their own fund management companies.
Russia's state pension fund - the largest pool of money, estimated at
Dollars 4.5bn last year - is reluctant to lose its monopoly position.
Many analysts say state pension reform initiated two years ago has been a
fiasco. The reform was supposed to allow Russian citizens to switch between 2
per cent and 6 per cent of their pension contributions to private fund
managers. But the state pension fund made selecting a private manager so
complicated that few Russians managed to switch their accounts to the private
sector.
In the absence of meaningful state pension reform, fund managers have to rely
on retail investors and more advanced companies that hire fund managers to
invest their pension funds and treasury money.
But Russia's growing middle class is also providing an important source
of capital for asset managers. Mr McCarthy estimates that about 20 per cent
of the group's business comes from retail clients who invest on average
about Dollars 8,000 into mutual funds. The rest comes from Russian tycoons.
The retail sector is, however, still constrained by a limited number of
instruments to invest in.
Russia has about 300 listed companies but only about 50 of them are liquid
enough to be traded. Mutual funds are required by regulators to invest only
in the most liquid stock, which limits their options to the top 10 oil and
gas producers that account for 85 per cent of equity market capitalisation.
"This makes mutual funds . . . vulnerable to the fluctuations in
commodity prices," Mr McCarthy says.
However, the equity market has been complemented by the rapidly growing
corporate bond market. Almost non-existent three years ago, it is today
estimated to be worth Dollars 15bn. Last year Russian companies issued about
Dollars 4bn of debt and the volume is expected to almost double this year.
"There is no shortage of money looking for home in Russia, but we need a
stronger supply of instruments to invest in," Mr McCarthy says.
Few Russian fund managers doubt the market's potential. But, as is often
the case in Russia, the problem is realising this potential.
[FT REPORT - FT FUND MANAGEMENT] |
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