Sunday, 27 September 2009

Barclays To Launch Funds Unit In Russia

Wall Street Journal Europe

September 20, 2009

By Jason Corcoran

Barclays is planning to launch an asset management business in Russia, building on its retail and investment banking activities in the country.

The bank will launch an asset management group focused on wealthy onshore clients and, potentially, the pension scheme and corporate sectors. Bob Foresman, who last week joined Barclays Capital as local chief executive and country head from Renaissance Capital, will lead the venture. Foresman’s appointment at BarCap was first revealed by Financial News on Friday.

Hans-Joerg Rudloff, chairman of Barclays in Russia, said the recruitment of Foresman demonstrated the bank’s commitment to the country.

Rudloff said: “These are good long-term investments – buying a bank, rebranding and getting into asset management onshore. When you hire lots of very high-profile people in a short period of time, it shows you are committed to the country. We also confirmed our intentions when Barclays bought Russian bank Expobank last year for a high price.”

Barclays’ retail bank acquired Russian lender Expobank last year for $745m. It has since rebranded and revamped Expobank’s 36 branches in western Russia. BarCap employs nearly 30 bankers in Russia, plus 70 Russian-dedicated bankers in London.

Barclays Capital fills top Russian role

Wall Street Journal Europe

By Jason Corcoran

September 18, 2009

Barclays Capital has filled one of the most hotly-contested positions in Russian banking, hiring the deputy chairman of Renaissance Capital as its chief executive in the country, where it is leading a fresh assault on the investment banking market.

Bob Foresman, who has only recently stepped down as one of RenCap’s most senior bankers, will lead Barclays Capital, the investment subsidiary of Barclays, in Russia.

RenCap declined to comment but a source close to the group confirmed that Foresman had left to join Barclays after completing a deal whereby the state development bank Venesheconombank agreed to become a cornerstone investor in a Macquarie Renaissance joint infrastructure vehicle.

A London spokesman for Barclays Capital could not immediately be reached for comment. Foresman could not be reached for comment.

Headhunting sources said they expected a spate of mandates from Barclays for more bankers in light of Foresman’s appointment to one of the most coveted investment banking jobs in Russia.

Foresman emerged from a tough shortlist, which has featured at different stages many of Russia’s top bankers. One headhunter familiar with the situation said Foresman could command an annual salary of between $2m (€1.4m) and $3m.

Foresman joined RenCap in September 2006 from Dresdner Kleinwort Wasserstein, where he was chairman of the management committee for Russia and the Commonwealth of Independent States. Prior to joining Dresdner in 2001, he was head of investment banking for Russia and the Ukraine at ING Barings and had worked at the International Finance Corporation in various roles.

At Dresdner, he played an important role on most of Russia’s large energy sector transactions in recent years, including advising state controlled Rosneft on its $10.4bn initial public offering in 2006, and state energy giant Gazprom on its acquisition of a 72.7% stake of in oil producer Sibneft for $13.1 billion in 2005.

Hans-Jörg Rudloff, chairman of Barclays Capital, told Financial News in April that the bank was a launching a fresh campaign in Russia and would be building on its traditional stronghold in debt capital markets into equities and mergers and acquisitions.

BarCap has steadily been growing its Moscow operation over the past year having hired extensively for back and middle office functions.

Alexander Zakharchenko was recruited about a year ago as head of M&A advisory from ABN Amro RBS in Moscow, while earlier this month Stefano Marsaglia joined Barclays Capital in Russia as chairman of its worldwide financial institutions group and Nikolai Tsekhomsky became chief of its retail and commercial banking business in Russia.

Marsaglia joined from Rothschild and Tsekhomsky from state-owned bank VTB.

Saturday, 19 September 2009

Sweden publishes its recipe for recovery

By Jason Corcoran

September 14

Letter from Stockholm

Sweden’s Finance Minister Anders Borg wouldn’t look out of place carrying an amp on a heavy metal road tour. He may sport a ponytail and loop earring but he isn’t known to be a headbanger. A trained economist, Borg can still play a crowd and his recent call for European Union restrictions on bankers’ pay has gone down well at home and abroad.

Borg, who chairs European Union finance ministers’ meetings as Sweden is the current holder of the EU presidency, has argued that “the banks were partying like it was 1999, but it is actually 2009”. He said the bonus culture must come to an end when the G20 meets in the US this month.

The former chief economist at ABN Amro Bank in Stockholm in the late 1990s warned there could be “social tension in our societies” if bankers’ compensation is not reined in. However, there was not much sign of social tension in Stockholm’s trendy Södermalm district last week where its inhabitants were enjoying the sunshine in crowded outdoor bars and restaurants.

The Swedish capital seems to have been relatively insulated from the global economic crisis compared with the country’s industrial cities, where national automotive icons such as Saab and Volvo are ailing and could end up in the hands of the Chinese.

Locals said the social democrats, which ruled for much of the past 60 years, were winning support in the regions but were still deeply unpopular in the capital. Borg’s centre-right Alliance party, headed by Prime Minister Fredrik Reinfeldt, swept to power in 2006 with a mandate to shrink Sweden’s welfare state. The Government wants market forces to dictate outcomes and has resisted calls to rescue the struggling car industry.

Borg’s recipe for growth has been to slash taxes and to axe some unemployment and sickness benefits in the Organisation for Economic Co-operation and Development.

As US President Barack Obama uses Sweden as his template for taking over corporations outright, the Swedish Government has been busy unloading its industries. State-owned pharmacies have been sold and the Government plans to sell its remaining 37% share of telecoms operator TeliaSonera.

Last year, it offloaded Absolut Vodka, which Borg said was a core function for neither a welfare state nor a nightwatchman’s state.

Borg maintains Sweden is better positioned to recover from the crisis than the UK or US because the state did not spend money on interventions and emergency measures.

He said last week he had revised his economic prognosis for economic growth upwards to 0.6% for next year. He expects Sweden’s public finances to balance within the next four to five years, with gross domestic product growth rising to 3.1% in 2011 and 3.7% in 2012.

Some 7.9% of the workforce in Sweden were out of a job in July, which was lower than expectations of a 8.3% rate.

The property market in Stockholm has rallied strongly after a dip last year. Policymakers are expected to raise interest rates sooner than the European Central Bank if and when the recovery takes hold.
There have been calls in the Swedish press for Borg to shed his ponytail.

But one civil servant drinking in the vast Mosebacke Terass bar overlooking the city said there was a fear the finance minister could lose his radicalism without his long tresses: “He’s our Viking-styled Samson and he would be just been another politician without his ponytail.”

Fresh fundraising signals hope for Russia

Private Equity News

Jason Corcoran in Moscow
09 September 2009

Moscow-based private equity start-up Quadro Capital Partners has so far raised $200m (€139m) for its first fund amid signs that the moribund fundraising market in Russia is recovering.

Quadro was formed in April by Giedrius Pukas, the former managing director of Troika Capital Partners who quit the alternative asset manager subsidiary after a dispute over the running of the business with Ruben Vardanian, the majority owner of parent investment bank Troika Dialog.

Pukas, who has been joined at Quadro by former Troika Capital directors Vladimir Kozlov and Nikolay Sergeev, said: “We tried to buy the business from Reuben but he wouldn’t let us so we set up Quadro on our own. We have so far raised $200m (€138m) and we have a target of $350m.”

The fund, which includes several investors in Troika’s private equity funds, will invest in distressed debt and across the consumer, lifestyle and finance sectors.

Quadro joins a host of other funds raising private equity funds in the country. Russia Partners has recently raised an $800m fund while new player PPF Partners announced in June it had raised €615m ($891m) to invest in assets in central and eastern Europe, with Russia the key market.

UFG and Delta, which are closing in on final merger talks, are both currently trying to raise funds. Many of the commitments made by investors to UFG’s Private Equity Fund 11 were generated by Boris Fedorov, the firm’s founder who died late last year. A source close to the firm said some investors had withdrawn since Fedorov’s death.

Aim-listed Aurora Investment Advisors has recently raised £50m for its second fund which will be primarily used to reinvest in its current investments.

James Cook, joint founder of Aurora, believes a demand for private equity financing will return as companies who survived the crisis seek fresh capital to grow.

He said: “We are seeing heavily reduced valuations which will likely yield high returns for private equity capital invested in 2009/10. As companies continue to find debt financing hard to secure, there is increasing demand for private equity capital to finance growth.”

Private equity deals have been thin on the ground over the past two quarters as funds had their allocations reduced or pressure was exerted by limited partners not to draw down commitments for investment. However, last week it was reported that US buyout fund TPG and the Russian state bank VTB had bought a 35.4% stake in Russian hypermarket chain Lenta for about $115m.

TPG is thus far the only international buyout fund with an office in Moscow but has found deals elusive. In the summer of 2007, a protracted deal to acquire the grocer Seventh Continent collapsed over price, while in April last year, TPG signed a contract to buy half of SIA International, Russia's largest pharmaceutical distributor, for $800m. TPG later withdrew and paid a fine of $50m.

Departing VTB finance chief takes Barclays role

Wall Street Journal Europe

September 9, 2009

Jason Corcoran in Moscow

The chief financial officer of Russian state lender VTB, who left the bank today, is to become head of Barclays' global retail and commercial banking business in Russia in move the bank says is vital for it to "diversify internationally".

Nikolai Tsekhomsky, whose appointment is subject to approval from the Central Bank of Russia, will take over from Sergey Radchenkov at the helm of Expobank, Barclays’ retail and commercial business in Russia.

Tsekhomsky joined VTB with a specific remit to spearhead it the bank’s $8bn (€5.5bn) initial public offering on the London Stock Exchange in May 2007, which is the second-largest listing by a Russia company. Domestic press and investors have criticised the bank followed the IPO as its share price has plummeted by 70%.

He has previously been chief financial officer for Renaissance Capital and financial controller for Brunswick, a Moscow brokerage subsequently sold to Switzerland’s UBS.

Tsekhomsky has been replaced as chief financial officer at VTB by Herbert Moos, who had been executive of VTB Bank Europe, an investment arm of VTB. A spokeswoman for VTB said no decision had been taken yet about a replacement for Moos. “Herbert will stay with us to help with a transition until we announce someone for the role,” she said.

Barclays reacquired Russian lender Expobank in March last year for $745m. The bank, which employs 1,800 staff in Russia, has since re-branded and revamped Expobank’s 36 branches in the west of the country Russia.

Analysts said last year that the $745m price tag, at four times Expobank's net asset value, was hefty but that the acquisition was relatively small and gave Barclays a place in a fast growing market.

In a statement issued to Financial News, the chairman of the board of directors of Barclays in Russia Hans-Joerg Rudloff, said: “This is an important step in the strategic development of Barclays in Russia and integral to Barclays ambitions to diversify internationally. We are optimistic about the growth opportunities in Russia and remain committed to the market in the future," he added.

Rudloff told Financial News in April the bank was launching a fresh campaign in Russia and would be building out further in investment and commercial banking, as well as retail.

Barclays' investment banking subsidiary Barclays Capital has steadily been growing its Moscow operation over the past year having hired extensively for back and middle office functions and yesterday announced the hire of Rothschild’s global co-head of financial institutions, Stefano Marsaglia, as chairman of its worldwide financial institutions group.

A senior hire to head up the investment banking team in Russia is expected with a number of senior Russian bankers in the frame.

VTB recruits for global expansion

Financial News

Jason Corcoran in Moscow
07 September 2009

VTB Capital, the Russian state-controlled investment bank, has hired a three-man mergers and acquisitions oil and gas team from Dresdner Kleinwort and two Morgan Stanley bankers in a worldwide recruitment drive.

The brokerage, which was launched in April last year, has lifted a hiring freeze that had led to a cut in personnel, costs and a halt on business expansion.

Yuri Soloviev, VTB Capital chief executive, said he had recruited an M&A energy advisory team from Dresdner in London, headed by Alex Metherell, along with Giles Coffey and Andrew Hollins. The bank has also hired a sales team from ING plus Morgan Stanley pair Alexei Mitrofanov, a financial institutions group banker, and Alexey Makhnyov, head of consumer and retail.

VTB Capital, which has recruited more than 500 personnel since launching last April, said it was also hiring financial controllers, traders, salespeople, commodities professionals, corporate finance professionals in M&A, and equity capital markets coverage bankers for roles in Moscow, London, Dubai and Singapore, where staffing had been cut to a third of previous levels.

Soloviev said the bank was likely to hire an initial team of a dozen bankers on Wall Street having ruled out buying a boutique investment bank stateside. VTB Capital has leveraged its parent’s balance sheet and government contacts to win business and has broken into the top three bookrunners for arranging eurobonds and rouble bonds in Russia and the Commonwealth of Independent States.

Renaissance Investment founder raids firm for new venture

Wall Street Journal Europe

September 4, 2009

By Jason Corcoran

Andrei Movchan, the founder and former chief executive of Russian fund manager Renaissance Investment Management, has recruited 20 personnel from the firm he launched to help set up a new wealth management business.

The firm name, Third Rome, alludes to Movchan's previous roles at Renaissance and Troika Dialog and also to what he describes as Russia's third cycle following the 1998 default and last year's banking crisis.

In an interview with Financial News, Movchan said the firm had hired a total of 30 personnel and had already won $200 million in client assets from Renaissance.

He said: ???In the private client world, the conversion rate is usually 100% because people like to stick to advisers they trust. There will be hurdles but expect we will have a very high ratio of clients defecting to us from Renaissance over time."

Movchan had been sole head of RIM from its inception in 2003 to 2007, when Rod Barker was hired from London-based hedge fund RAB Capital to take up the role of co-chief executive alongside him.

Movchan quit in February this year after the disagreement with the founder of parent group Renaissance Capital Stephen Jennings over the strategic direction of RIM. Jennings had wanted RIM to become a diversified asset manager involved in retail, institutional and international funds while Movchan wanted to focus on the high net worth segment.

Third Rome will focus exclusively in discretionary asset management accounts for high net worth clients and will steer clear of mutual funds and pension fund management, which Movchan believes are negligible. Clients will require a minimum of $1 million to invest.

"We are going to focus on discretionary management accounts rather than setting up funds. Clients want liquidity rather than additional legal structures. We will set up funds at a later stage," Movchan added.

Danilo Lacmanovic and Alexander Granovski have both been hired as senior partners of new firm. Lacamanovic worked at Renaissance for almost five years and latterly as a director advising high net worth clients and corporates, while Granovski worked at Renaissance for third years on discretionary client programs for high net worth individuals.

Other arrivals from Renaissance include business development director Dmitry Zhuk and Max Yanpolsky, who has joined as chief operating officer and chief technical officer.

RIM, which focused primarily on high net worth client referrals from Renaissance Capital, had built up client assets to $6 billion by early 2008.

Those assets have since fallen due to client redemptions and a fall in equity valuations. It has assets of $3.6 billion as of January 16, 2009.

Renaissance declined to comment.

Pension funds start building with Brics

Financil News

Jason Corcoran

24 August 2009

UK consultants advise clients to invest up to 15% in emerging markets
Emerging markets have finally gone on the pension scheme radar as the stock market boom in China and India outpaces the recovery in the west. While developed world equities have advanced by 15% this year, markets in China, Russia and India have clocked up 44%, 52% and 61% respectively.

In the absence of economic growth, western markets are starting to acquire some of the dysfunctional characteristics of developing countries, as governments agonise over the future.

Figures from global fund tracker EPFR show dedicated emerging-market equity funds took in $1.6bn (€1.1bn) in the first week of August, bringing total year-to-date inflows to $36.1bn.

Investor demand for emerging market bonds means the cost of insuring against debt defaults has fallen below western governments for the first time. Russian default swap prices, for example, have fallen to 255 basis points, or 20 basis points less than those linked to California.

Investment consultants in the UK remain cautious but none the less they are advising pension fund clients to invest up to 15% of their portfolios in emerging markets through equity, debt, currency, swaps and other strategies.

Hewitt Associates recommends that schemes should invest a maximum of 10% in emerging markets. Consultant Tapan Datta said: “The general fear factor associated with emerging markets has diminished. Their debt and equities are now on a par with developed markets.” Mercer recommends a 10% to 15% exposure and advises schemes to tap into the skills of specialist managers rather than broadening the remit of global teams.

Deborah Clarke, a principal at Mercer, said there was evidence that money has been switched out of UK and US equities into global and emerging market mandates.

She said: “We are seeing global and emerging market mandates picking up this year after going very quiet in 2008. A number of global equity managers are broadening their mandates.”

The risk aversion of pension fund trustees has historically been a factor working against increased asset allocation to emerging countries. The repeated occurrence of financial crises in countries such as Argentina, Mexico and Russia heightened perception that emerging markets were excessively volatile.

In the past, schemes in the UK and the US have viewed emerging markets as deserving their own asset class. They were seen as a sub-component of global equities, within Morgan Stanley’s All Country World Index for equities or Citigroup’s World Government Bond Index for bonds.

The upheaval in developed markets over the past two years and the reduced contagion to emerging economies suggests a greater migration of capital from the West is under way.

Mark Humphreys, a member of Schroders’ Strategic Solution group, said: “Pension funds should look at emerging markets more closely. They represent 12% of the MSCI all countries index and we expect that to increase.”

Asset managers and investment banks have been positioning themselves to benefit as emerging markets recover more quickly from the global economic crisis.

A survey by Bank of America Merrill Lynch published last week showed a net 52% of fund managers wanted to be overweight developing economies.

UK-headquartered bank Standard Chartered has raised £1bn (€1.1bn) to allow the group to expand in Asian markets. Standard chief executive Peter Sands said the group believes Asian markets will benefit from a faster recovery than the west.

Fund manager Mark Mobius plans to double Templeton Asset Management emerging-market assets to $50bn within two years. China is the top Mobius pick. Other managers see the country as a catalyst to a global recovery.

Jerome Booth, head of research at Ashmore Investment, has caused waves with his recent suggestion that investors should increase their level of exposure to emerging markets to between 35% and 50% based on the share of global GDP.

Long-only managers and emerging market specialists said Booth’s allocation is excessive and would blow a hole in pension scheme risk budgets.

Bill O’Neill, a portfolio strategist at Merrill Lynch Global Wealth Management, said: “Fifty per cent is way beyond what funds should be putting in. We think 12% should be a starting point. The story is right but the key problem is that the opportunity was more compelling early in 2009 when emerging markets were seriously undervalued.”

Aviva Investors supports Booth’s views in terms of how he has highlighted the potential for emerging markets, relative to developed markets, to contribute more substantially towards portfolio outperformance.

It believes that as emerging markets are growing, developing and arguably maturing, investors need to take a more sophisticated approach to tapping main growth markets.

Instead of allocating on a country or regional basis, Aviva makes the argument for using different emerging market styles. Aviva recently reorganised its emerging markets team on this basis, and instead of having regional experts it has managers dedicated to emerging macro, emerging special situations, emerging small cap, and so on, with the aim of delivering greater alpha.

Baring Asset Management is cautious on developed markets. Percival Stanion, head of asset allocation at Baring, said pension schemes should be downsizing their structured weightings to developed markets.

He said: “The industry is seeing a big ramp-up in searches and appointments in the UK and the US for emerging markets mandates. We have about 25% of our portfolio invested in emerging markets, which would be considered aggressive elsewhere.”

Baring stresses that emerging market portfolio exposures should depend on client risk appetites. But it believes investors’ allocation to emerging markets should, on a long-term strategic basis, be about 20%.

In multi-asset portfolios, Baring can argue that you need an investment manager that can tactically manage this exposure to emerging markets as conditions dictate, rather than maintaining a certain level of exposure at all costs.

Jonathan Harrison, global head of research at UBA Capital, the investment arm of the United Bank for Africa, recommends pension funds commit 40% to emerging economies.

He said: “Developing markets are, almost by definition, growth leaders and therefore more attractive investment destinations than developed markets. The global crisis has not altered the fundamental thesis but has illustrated that it is not only developing markets that are prone to periodic economic earthquakes.”

Swiss private bank Lombard Odier Darier Hentsch said allocations stretching to 50% are neither realistic nor pragmatic. Curtis Butler, head of emerging market equities at Lombard, said many inflows were a reaction to the correction from last year’s slump.

He said: “We believe in gradually increasing exposure. Emerging markets have not yet achieved the stability on an annualised basis. We need to see another decade of stability. There are still those who see emerging markets as a fair-weather friend but they have not yet learned to have them as a permanent place in their portfolios.”