State Street Axes Russia Overweight, LGT Dubs Country CasinoJason Corcoran
State Street Global Advisors, the world’s second-largest asset manager, dropped its Russia “overweight” rating as Swiss manager LGT Capital Partners said the country was only good for an occasional “casino” bet.
State Street, which oversees $2.1 trillion in assets, eliminated its “overweight” position, citing slowing economic growth and “the black cloud of corporate governance,” Chief Investment Officer Richard Lacaille said in an interview today in Moscow. He declined to say what Boston-based State Street’s new weighting is and when it changed.
Just over a year ago after appearing at the same Moscow investor forum, Lacaille said his firm was “overweight” Russia and in the process of “re-risking capital” in the country.
Russia’s economy grew at the weakest pace in the fourth quarter since a recession in 2009 due to a slump in consumer spending. The benchmark Micex Index entered a level some analysts call a correction on April 11 after dropping more than 10 percent from this year’s peak. Russia-focused funds had $393 million of net outflows in the prior seven days, the biggest decline since the global economic crisis started in 2008.
Pius Fritschi, managing partner of Switzerland’s LGT Capital Partners, which has about $25 billion under management, said his Russian holdings were “at a historically low” level.
“The risk-reward can be worth it, but you have to limit your risk,” Fritschi said in an interview. “Russia represents the gambling money you might have at a casino so you limit yourself to one bet.”
LGT is a minority investor in OAO TNK-BP Holding, the Russian oil producer being acquired by state-controlled OAO Rosneft. Fritschi said he is teaming up with other minority investors to seek redress after Rosneft’s plan to borrow money from the company rather than paying dividends sent the shares to a record low last month. Moscow-based Rosneft said its move was standard practice.
LGT, which specializes in hedge funds and private equity, has 1 percent to 2 percent of its holdings in Russia compared with 7 percent to 8 percent for China, 3 percent to 4 percent for Brazil and 2 percent to 3 percent for India, Fritschi said.
Shares in TNK-BP jumped yesterday after Russia’s First Deputy Prime Minister Igor Shuvalov told investors at the Sberbank forum that Rosneft will tackle the issues faced by minority investors.
Russia’s 30-stock Micex Index advanced for the first day in seven, adding 0.1 percent to 1,336.78 by 5:44 p.m. in Moscow. The Micex trades at 5 times estimated earnings, the cheapest valuation among 21 emerging markets tracked by Bloomberg and a 50 percent discount compared with the MSCI Emerging Markets Index.
“People have long memories,” Lacaille said of TNK-BP. “We as investors see these as pieces of evidence that give you a picture of the culture and political environment.”
State Street had a Russia joint venture with Pallada Asset Management from 1998 until its dissolution in 2005. Lacaille, who was previously involved in discussions on pension changes with Russian policy makers, said last year Russia wouldn’t be on “the top of the list” for State Street to build a local capital business for domestic investors.