RTS plans raft of new derivatives - Incisive Media

fund profile: renaissance investment managementRenaissance: the eclectic houseopen and ready for (new) businessportfolio, Russia and fixed incomeremains one of the best plays,” Kolchinasays.While she concedes that higherabsolute returns can be earned inother local markets such as Turkeyor Egypt, for example, she saysRussia is much stronger fundamentallywhile the market offers “goodliquidity and great diversification.“Russian bonds provide fundamentaland stable investmentsand, at the same time, Russia sndits companies are in the process ofimproving their credit quality, andthat is why you can participatein the economic growth we see inRussia.” (Russia is now rated BBB+by Standard & Poor’s.)RIM’s fund is predominantly corporatebonds, with some sovereignswith commensurately lower yields.“There are lots of corporatebonds in a market that is liquidand large by international standards,and where you can get bothliquidity and diversification,” Kolchinaadds.“Russian companies have juststarted to build their history. TheRussian market is generally underleveragedcompared to internationalstandards, while there is greatdemand and in and outside Russia.”The sectors on offer to Kolchinarange from consumer and retail– closely linked to Russia’s recentconsumer boom – to the financialsector and industrial firms.Kolchina and her team musttherefore be discerning – she notesthe RIM Russia Debt Fund preferssmall and mid-sized companiesthat have experienced high growthrates, are improving their corporateand financial structure and withrevenue growth of 50%.Where credit quality could beimproved over two years, Kolchinaand the Renaissance Russia DebtFund fund takes an interest.“We are in the market every daywe know the companies very welland meet them regularly, and haveaccess to shareholders and all thedecision-makers,” Kolchina adds.The international demand forRussian issues falls away whenit comes to local bonds, Kolchinanotes, an area the RenaissanceRussia Debt Fund in concentrateson. Where it gets involved in theEurobond market traded on internationalmarkets, the fund mayengaging in arbitrage.Yevgeny Minkin adds foreigninvestors may be less active in thelocal market as they may lack custodyarrangements for local issues.“Our fund offers access to ourexperience in Russian corporates,”Kolchina explains. “Those sittingin London do not know these companies.Russian fixed income willcontinue to be a good play in termsof risk and return.“If you like fixed income, youmust invest in Russia and the bestway is our fund,” she says.financial focusMarina Chekurova and SergeyNazarov are directors of RenaissanceInvestment Management’sRenFin fund, dedicated to investingin the financial sector and with athree-year life but with an optionfor shareholders to extend this.Closed to new investors after“significant oversubscription” inNovember 2006, and with about$200m, RenFin is about 50%invested already, and its managersare in late-stage negotiations forinvesting the remaining 50%.Chekurova notes they expect tobe fully allocated, to 10 deals, withinabout six months.The fund, which was trading at a20% premium to its net asset valuein late February and whose value isreported at cost between semi-annualrevaluations, is predominantlyinvested in the equity of unlistedRussian financial-sector firms. Mostof the deals in the fund’s pipeline areproprietary transactions.Presently, RenFin has four longterminvestments and three shortterm,liquid stocks. Sberbank stockis held for cash-management reasonsand the fund also holds Kazcommerzbank.“The reason for our main focus onunlisted is, Marina and I have beenin the sector for more than 10 years,and that gives you a feeling for whatare the right partners to approach,”says Nazarov.He and Chekurova have the lengthof experience to have seen the firmsin more trying times, adding to theelegance of their insight.“In 2001, no-one was investingin Russia’s financial sector and theEuropean Bank for Reconstructionand Development (EBRD) was theonly investor in the financial sectorand that was a great sector in termsof getting the contacts in the Russianfinancial field.”Chekurova and Nazarov havescreened about 350 financial firmsbefore deciding on investees.“It gives you a good understandingfor the scope and is one reason wecould invest so quickly,” says Chekurova.(Bubnov adds RenaissanceInvestment Management’s recruitingof managers who have an existingpipeline of investees when they join,and who are effectively ready to startrunning portfolios on Day One is anadvantage of RenaissanceInvestment Management.)Nazarov differentiatesRIM’sfinancial-sectorfund to peersthus: “ManyW e s t e r nfunds claimthey havea Russianfinancialsectorexposurebecausethey holdS b e r b a n kstock. ButSberbank correlatesmorewith the marketbut not the Russianfinancialsector’s fundamentals.”He notes Sberbank’sstock moveddown in May 2006together withthe stock market’sbenchmarkRTSindex.Russia’s financial-firm landscapeis fundamentally different to theUK’s for example. Nazarov notesmergers and acquisitons typify thesector in Russia, managers maybe wanting to cash out themselveswithin two to three years, andthere is a large weighting to retailbanking operations.(Nazarov adds, growth in retailbanking last year exceeded 40%and the average bank’s assets areprobably split around 40% corporateand 60% retail.)There is also a broad divergencebetween quality management ofsome smaller financial firms inRussia and companies that maybe, to put it frankly, inexistence for questionablepurposes.Of around 1200banks, Nazarovnotes “abouthalf are genuinefinancialinstitutions.”The RenFinfund clearlya v o i d sthe otherhalf.“We canhelp shareholdersinthe managementof thequalityb a n k schange