Thursday, 15 February 2007

FIM joins growing list of Nordic funds taking on Russia

Business New Europe

Jason Corcoran in Moscow

A plucky Finnish investment manager is about to launch Russian domiciled mutual funds, though the major Western firms remain decidedly cagey about setting up shop in Moscow.

FIM Asset Management, which is Finland's fourth-largest fund manager by income, is targeting Russia's emerging middle class with the launch of three mutual funds later in this quarter.

"The Russian mutual fund market is about a tenth of the size of the Finnish market. This represents a huge opportunity and we feel FIM has the competitive edge and the experience of investing in Russia to make serious in-roads," says Jan Forsbom, chief executive of FIM Asset Management.

The three rouble-denominated funds – FIM Russian Equities, FIM Russian Portfolio and FIM Russian Bonds – will closely match existing FIM funds that invest in Russia.

An emerging market specialist, FIM has been investing in Russian stocks since 1997 and its large- and small-cap Russian funds already have over €500m under management. The large-cap fund is one of the top-three mutual funds investing in Russia over five years with a return of 40%, against a benchmark of 38%.

Analysts at FIM have recently begun equity research operations in Russia with a specified focus on small- and mid-cap stocks. The funds will be mainly distributed in Russia but they are also available for international investors.

Forsbom admitted the success of FIM's Russian gamble hinges on the number of distribution agreements it can set up with insurance brokers, financial advisors and other third parties. He said a number of agreements had already been signed, but declined to give details.

FIM's target for its first year in Russia is to develop a distribution network and to gain €100m in funds under management. With a total of €3bn in assets under management, FIM has been able to add business by arranging third-party distribution agreements with the likes of BNP Paribas Asset Management and Nomura Asset Management. In Russia, Citigroup has spurred the growth of fund inflows through its open-architecture platform and FIM’s Forsbom wouldn't discount the possibility of doing deal with the US giant.

Russia's fund industry matures

The Russian fund management sector is set to undergo radical consolidation with many firms going bust or being bought up by the market leaders, according to Aren Apikyan, managing director at Alfa Capital, which manages over $400m.

"There are about 150 asset management firms in Russia but 90% of the sales are down to six or seven players. The remainder have 10% of the market, but this is going to change with more bankruptcies and the rest being bought up by foreign asset managers," Apikyan says.

Benelux manager Fortis set up a joint venture last year with CIT Finance Asset Management of St Petersburg and more Western fund firms are rumoured to follow. Yet in 2005, State Street Global Advisors, a US institutional fund manager, ended its seven-year partnership with local manager Pallada Asset Management.

"The big retail managers are piling into China and India, but Russia is still viewed as a basket case because of its lack of transparency and its cumbersome regulatory regime," said a London-based fund manager.

FIM, which listed on the Helskinki Stock Exchange last spring to fund its overseas expansion, is just the latest Nordic player to enter the Russian retail financial sector. The saturation of the Scandinavian market has prompted Swedbank, the Nordic region's fifth-largest bank by market value, to launch retail services in Russia via its ownership of the Baltic bank Hansabank. And in November last year Danske Bank acquired Finland’s Sampo Bank to expand its reach in the Nordic and Baltic regions.

"In the last few years, [FIM] grew fast at the rate of 40% but now we have reached a ceiling in Finland as have Dankse and Nordea. Our plan is to develop further in Russia, in Sweden through the public defined contribution pension plan (PPM) and to register funds in Luxembourg to sell to the mid-European fund supermarkets," says Forsbrom.

February 1, 2007

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