Who Are Russia's Top Money Mangers: The Russia 20

Who Are Russia's Top Money Mangers: The Russia 20 - Institutional Investor
September 22, 2011 • Craig Mellow


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These should be good times for Moscow-­based asset managers. After all, affluent Russians’ pockets are bulging with cash again. Moscow regained the crown of city with the most billionaires in this year’s Forbes magazine ranking, edging out New York, with 79.
The surge in wealth reflects a vigorous economic recovery from the 2008–’09 financial crisis. Growth is running at a healthy 4 percent, stoked by Brent oil prices that have remained above $100 a barrel even as the global economy has slowed. Privately administered pension funds are growing rapidly in Russia, promising the formation of a much-­needed institutional capital base. Stocks and bonds are increasingly attractive to retail investors as bank deposit rates lag well behind inflation.

For now, though, those positive factors offer more potential than actual benefit to local fund managers. Oligarchs and the merely wealthy are managing their money through Western-­based family offices or entrusting it to European private banks, engaging in what Russian financiers euphemistically call “geographical ­diversification.”

Ordinary savers, meanwhile, remain scarred by a number of violent market swings since the country’s mutual fund industry was born in the privatization wave of the mid-1990s. The stock and bond markets cratered after Russia defaulted on its debts in 1998, and it took nearly a decade of economic and market recovery to begin enticing retail investors back into funds. That tentative confidence suffered a fresh blow in 2008, when the financial crisis wiped out three quarters of the Russian Trading System’s market capitalization between May and October. The RTS index was just approaching its precrisis highs when the latest global economic jitters triggered a 30 percent correction between April and August.

Given that volatility, it’s little surprise that Russian mutual funds hold a derisory $4 billion in assets, a pittance compared with the country’s $150 billion in bank deposits, according to Troika Dialog Asset ­Management. “Russia has one of the most unfortunate mutual fund industries in the world,” says Anton Rakhmanov, Troika’s director of asset management. “We’ve been in existence for 15 years and had two crises.”

In contrast to the subdued domestic players, international investors are edging cautiously back into Russia, spurred by the general vogue for emerging markets. This trend is evident in the Russia 20 , Institutional ­Investor’s exclusive new ranking of the country’s largest money managers. Two Western-­run asset managers top the list. Prosperity Capital ­Management, an independent firm that focuses exclusively on investments in Russia and the former Soviet Union, had $4.85 billion in Russian assets under management at the end of June. It is followed by TKB BNP Paribas ­Investment Partners, a joint venture between the French bank and TransCreditBank, a subsidiary of Russia’s state-owned VTB Bank. The outfit had $4.09 billion in assets.

Mattias Westman, the Swedish founding partner who runs Prosperity from London, says the firm’s investor base, traditionally dominated by European family offices and Scandinavian institutions, is becoming more diverse. Since the crisis the firm has attracted money from four sovereign wealth funds, including ­Norway’s deep-­pocketed ­Government Pension Fund Global, and two U.S. pension funds, a class of investors that has typically been Russia-­averse. “A lot of investors are willing to have a real look at Russia now rather than dismissing it out of hand,” Westman says.

UralSib Asset ­Management ranks third on the list, with $4.01 billion in assets, followed by Troika Dialog Asset ­Management ($3.33 billion) and Promsvyazbank ($2.41 billion), Russia’s tenth-­largest bank, which is one quarter–­owned by ­Germany’s ­Commerzbank and the ­European Bank for ­Reconstruction and ­Development.

Homegrown Russian asset managers would love to build a bridge to Western capitalists. Aton Asset Management Co., which ranks No. 12 on the list, will launch a hedge fund next year targeted at international investors and domiciled offshore, deputy CEO Pavel ­Nikonov says. (If it were registered in ­Russia, the government might tax all the fund’s gains, not just the manager’s ­earnings.)

Yet most Russian managers still place their biggest hopes on reviving the domestic retail business. Here the potential seems impressive. The same Russian wealth explosion that has produced the country’s fabled nouveau riche has trickled down to millions of middle-­class families with considerable means to build a traditional bourgeois nest egg. Per capita GDP reached $15,900 on a purchasing power basis last year, according to the Central Intelligence Agency’s World Factbook. That’s 30 percent higher than Turkey’s income level and nearly 50 percent more than Brazil’s. The average mutual fund account at Aton is worth $70,000.