Foreign managers attracted to Russia by the region’s wealth

Financial News

Jason Corcoran in Moscow
28 Jul 2008

Russia’s crowded asset management arena is getting busier. France’s Société Générale Asset Management is the latest foreign investment business to explore launching funds there, as firms are attracted by the wealth being generated within the country.

Benelux’s Fortis, Germany’s Allianz, Italy’s Pioneer Investments, Austria’s Raiffeisen, Germany’s DWS, Iceland’s Glitnir and Baltic manager Parex have all launched Russia-domiciled funds in the past few years.

Russia’s emerging middle class and a boom in commodity prices have led to annual growth in retail asset management of 50% a year.

Société Générale Asset Management, which manages more than £262bn (€332.7bn) worldwide, may be about to join the fray by setting up a retail operation in Moscow, according to sources. It is believed to have applied to the main regulator, the Federal Financial Markets Service, for an asset management license.

Société Générale declined to comment on whether it was poised to enter the Russian fund market. A Paris spokeswoman said: “SGAM continues to study the various opportunities to intervene on the Russian market.”

The French group has distribution in Russia through its control of retail bank Rosbank, which has a network in most of the country’s regions.

However, domestic fund managers such as Troika Dialog Asset Management, which manages more than $10bn (€6.4bn) in retail, institutional and government funds, are sceptical of the chances of foreign participants succeeding. Pavel Teplukhin, chief executive of Troika Dialog Asset Management, said: “I assume that all of the global players will be in Russia pretty soon. Quite a number of global asset managers already operate in Russia and their success is rather mixed.”

Troika is Russia’s market leader in the management of retail funds, known as personal investment funds or PIFs. Teplukhin, who helped draft the Russian Federal Law on mutual funds, believes a lack of brand recognition is the greatest hurdle for foreign fund firms.

He added: “Their names are not familiar to the Russian audience and it is hard for the management of these banks to understand that. It would take a while before they can provide potential clients with a clear Russian record and before they win some brand recognition. Current market sentiments are not helpful either.”

One way for foreign funds to overcome the brand issue is to partner with a local institution.

Benelux’s Fortis and Germany’s Allianz have gone down this route with their tie-ups with St Petersburg-based investment bank KIT, and Rosno, which has a successful insurance business.

KIT Fortis, the fund management joint venture, has grown rapidly in assets under management to 60bn roubles (€1.6bn) since its launch in May last year. KIT Fortis has distribution agreements with more than 60 agents, such as VTB 24 and Citibank, in 650 outlets across Russia.

The growth in assets was helped by the transfer to the company of €640m ($1bn) from existing Fortis international funds and segregated accounts in the Nordic region. The assets were transferred under the terms of the acquisition of Fortis Investments of Dutch fund manager ABN Amro Asset Management.

Vladimir Kirillov, chief executive of KIT Fortis Investments, said the transfer of funds from ABN Amro was based on the success of its first Russia-domiciled equity fund. He said: “The fact that a large institutional client deposited €150m in the funds after the decision to transfer them to our company speaks for itself.”

Joint venture Allianz Rosno Asset Management, which has benefited from the expertise of the German group’s Allianz Global Investors, has grown to assets under management of about $700m.

It was one of five managers awarded 1.5bn roubles by the Russia Venture Company, which was set up by the Government to revitalise Russia’s industrial base.

Pioneer Investments, the funds subsidiary of Italy’s UniCredit, has set up a Moscow operation and hired local managers to run its domestic fund range. Austria’s Raiffeisen Capital Management, which manages €40bn, is one of the few foreign participants with brand recognition through its Russian retail banking network and its acquisition last year of Impexbank, Russia’s seventh largest bank.

Raiffeisen, which has been investing in Russia since 1994, has a local fund management subsidiary staffed by three fund managers and two analysts. Through Raiffeisen Capital Moscow, Russians are being offered locally domiciled bond and equity funds.

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