Finance: MUTUAL FUNDS
MONEY MANAGERS ARE RUSHING TO RUSSIA
They're chasing billions held in small stashes
Skipping lunch, Sergei V. Matrenok hops on the Moscow metro to Credit Suisse Investment Funds' new sales office on the ground floor of a Stalin-era skyscraper on Kudrinskaya Square. Under crystal chandeliers and gilded ceilings that Credit Suisse spent nearly $1 million to renovate, 12 clerks sit at computers taking orders. In half an hour, Matrenok, 36, is on his way back to his desk at Lipetsk Bank, a certificate for $4,000 worth of shares in the Swiss bank's Large-Cap Equity Fund in his pocket. Says Matrenok: "If you want to make money, you have to invest in the stock market."
That's music to the ears of the managers of some of the world's biggest mutual funds. With Moscow's stock market up 60% since Jan. 1, and individuals hoarding an estimated $30 billion in hard currencies, such U.S. money managers as Franklin/Templeton and Pioneer are competing with Credit Suisse and local financial groups to sell Russian equity and bond funds to small investors across the country. "There's no reason why we can't duplicate in Russia what we have in the United States," says J. Mark Mobius, president of the New York Stock Exchange-listed Templeton Russia Fund.
The equity boom of 1997 is being fed by foreign money pouring into Russia on the back of the Moscow stock market's 156% surge last year. Although more local investors are warming to stocks, foreigners still account for at least 90% of trading. Although much of Russian industry is still unproductive and politics are unstable, many overseas investors say they no longer view the country as a mess. They argue that the economy is stabilizing, interest rates are falling, and corporate profits and disclosure are improving. Foreigners' confidence has also been bolstered by the World Bank's International Finance Corp.'s inclusion of Russia in its widely watched index of emerging equity markets last fall. Money managers say that attracted many global equity funds.
A CUSHION. At least 41 equity and debt funds aimed at investors in the U.S. and other countries now have more than $1.4 billion in assets, estimates Ian M. Wilson, editor of Micropal Emerging Market Fund Monitor. For the most part, foreign--and domestic--investors are buying into liquid blue-chip issues, including Rostelekom, a big long-distance phone company, and such rich energy producers as Lukoil, Gazprom, and electric utility Unified Energy System. To be sure, some foreigners might flee Russia if a new political crisis breaks out. But analysts note that Russia's low foreign debt and ample reserves of hard currencies should cushion the blow of any market retreat on the economy.
Taking advantage of the upbeat market mood, the first stock fund aimed at local investors, Credit Suisse's Large-Cap Equity, opened Jan. 31. It has collected some $300,000. Russians have invested $12 million in mutual funds since Nov. 12, when Boston's Pioneer Group opened Russia's first mutual fund, Pioneer First Voucher, to invest in government debt. That even $12 million has flowed in is impressive, given that nearly 30 million Russians lost their nest eggs in pyramid-style investment scams in 1994 and 1995. With memories of the scams still fresh, "we need to educate the public that this is an entirely new type of instrument that is open and transparent and strictly regulated," says Tim Frost, director of Pioneer Group's Russian financial services activities.
To prevent new pyramid schemes, the government has issued more than 20 regulations for fund managers. Companies must go through a rigorous registration process, and only 15 have received licenses so far. But "there are many more people trying to create scams than control them," concedes Dmitri V. Vasilyev, chairman of the Federal Securities Commission.
Over the next few months, several more blue-chip equity funds are expected to join Credit Suisse's offering. If the market keeps its momentum, money managers are hoping more individuals will move some of their cash into equity funds. If consumers take to stocks with the enthusiasm that the current crop of fund managers predicts, there's bound to be more big names selling funds on the streets of Moscow before long.By Patricia Kranz in MoscowReturn to top