News: Portfolios get a boost as Putin backs Yukos
ByLine: Nick Fitzpatrick
Pension schemes with investments in Russia saw their portfolios bounce last week after president Vladimir Putin
supported the Yukos oil company, saying he did not want to see the firm go broke.
At Schroders, the independent fund manager with GBP100.4bn under management, the news was particularly welcome as
Yukos forms Schroders' biggest overweight position in its emerging markets portfolio.
Schroders also recently backed Russia as a key emerging market component for UK investors. Through its global
emerging market portfolios, Schroders invests $300m (GBP163.3m) in Russian equities and even more through other funds,
such as energy funds.
F&C Management's Douglas Helfer, global emerging market fund manager, said his firm is also very bullish on
the country's equities. F&C invests $450m (GBP245m), mainly segregated institutional mandates, in Russian
equities.
Yukos's former chief executive, Mikhail Khodorkovsky, and another senior manager are currently being prosecuted
for fraud and tax evasion. Yukos faces a $3.4bn claim in unpaid taxes.
Tapan Datta, Schroders director of emerging markets and strategy, explained: "The real call of this is the
underlying assets on the business.
"There will be some reputational damage to Yukos, but there's a major value story there if the underlying
assets are not damaged."
Datta believes that Russia remains one of the cheapest emerging markets and that there is a strong expectation that
investment opportunities in the Russian equity market will broaden.
Emerging markets have outperformed over the past two years, and more fund managers are marketing products as a result
of this.
The Russian equity market doubled in the year to end March 2004 and the list of British and other foreign companies
seeking a presence in Russia has grown rapidly, embracing sectors as diverse as chocolate and construction.
The key debate now focuses on whether economic liberalism and Putinism, the move towards greater concentration and
centralisation of presidential powers under President Putin, are compatible. Schroders argues that "what Putin
does, as opposed to what he says, reflects a reformist inclination".
Helfer, at F&C, said: "We've taken a view that the main policy objectives of the Putin government is to
attract as much investment as it can."
Standard & Poor's, the ratings agency, said that for the second consecutive year, eastern European equities
provided strong returns for fund managers, both in absolute terms and relative to other asset classes. Russia was the
best performer over the review period, benefiting from its large exposure to the oil and commodities sectors.
Thomas Lancereau, associate at fund research at Standard & Poor's, said: "Going forward, fund managers
covered in this review remain confident about the region, keeping their portfolios fully invested."
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