FUNDS: Parex Asset Management wins at home, looks to CIS markets

By bne IntelliNews March 20, 2008

Mike Collier in Riga -

It may have passed unnoticed while the world's money markets wrestle with huge write-downs and bankruptcies, but in a quiet, air-conditioned office in the centre of Riga, Roberts Idelsons is calmly and confidently outlining a much more positive position for Parex Asset Management, which he heads.

Idelsons spoke to bne just a few hours after Parex signed an agreement in March with the First Latvian Closed Pension Fund (Pirmais Slēgtais Pensiju Fonds) to put its expertise to work managing a financial portfolio for the fund. Nothing unusual in that - except that Parex will actually supply one of a pair of fund managers for the scheme, the other being supplied by existing portfolio manager Evli Securities. In effect, the two companies will be in competition, but working towards the single goal of generating growth and value for the fund.

First Latvian Closed Pension Fund is the only private pension fund in Latvia with employers as shareholders - namely telecommunications and energy giants Lattelecom and Latvenergo. It is also the largest plan of its kind, including 12,400 members, with around Є40m accrued on their accounts. Small beer by international standards perhaps, but of real importance in a Baltic context where there is no long-established pension culture.

Though delighted to be chosen by the scheme's administrators, Idelsons is keen not to knock Parex's new competitor. "Historically it has been managed to a high standard by Evli," he told bne. "It might seem a bit strange, but actually I think this is rather a good idea to have two bright, well-established companies working towards a single goal.

"Both managers will be looking for the best possible ways to get a return. Of course, we'll have to wait and see how it works out, but in general I tend to agree that this might generate better returns overall regardless of problems that might be encountered."

A tender for management of the First Latvian Pension Fund was announced back in November 2007 and Parex's win was based on several criteria, including market expertise, size of assets under management, team professionalism and the company's track record on the pension fund market in Latvia and in Europe.

New markets

The win is just the latest success for Parex's highly individual growth model. With over Є640m in assets under management, Parex Asset Management, a subsidiary of Parex Banka (which has assets exceeding Є4.5bn), is the largest investment management company in Latvia. Parex offers investment management and advisory services to domestic and international retail, corporate and institutional clients.

Through its subsidiaries and representation offices, Parex also operates in Lithuania, Estonia, Russia, Ukraine and Kazakhstan, and these new markets are where Idelsons sees real opportunities for future growth, to the extent that he is keen that Parex is not viewed so much as a Baltic bank as a financial institution covering a much wider geographical spread.

"It is important to understand that we are not about investing money in the Baltics. We don't have any products that specifically invest money in the Baltics. We are not a Baltic player and we don't want to position ourselves in the Baltic. We have fully licensed subsidiaries in Moscow and Kyiv as well as elsewhere. We see our business diversifying into new countries, especially in Ukraine where we are in a leading position with our open-ended mutual trust fund and we want to maintain and develop that position as the market grows."

"We have products investing in countries across Ukraine, Russia and Central Asia. We are more focused on these as target countries. Each one has a different dynamic, which is why we try to be as specific as possible." Work is being done to prepare a new Central Asian investment fund that could become Parex's first such product to be offered internationally, possibly in the UK, Switzerland and Germany.

Idelsons sees Ukraine as the "market of the moment," identifying it as being at a similar stage as the Baltic states when they moved out of Russia's shadow. With the Baltics having experienced the bursting of its "boom bubble," Ukraine and then Kazakhstan and Azerbaijan are likely to replace them as markets with the most rapid but still dependable growth. Georgia he sees as a slightly more complex situation, which is still being monitored.

To that end, Idelsons stresses that Parex has already been "on the ground" in the new markets for some considerable time, outlining a strategy in which intelligence is gathered and prospects are identified, sometimes for years before a fully-blown subsidiary is established.

"Usually we don't like to buy much - if you look at our offices, they have all pretty much grown organically. If you want to make an impression on local markets, you have to have local professionals - and that's something we do have," he says. "Many of the people who are on the ground in those countries have been on the ground for more than 10 years - for instance in Russia and Ukraine - so it is easy for us to understand the underlying rationale and gain a deeper understanding of the markets."

Such long-term strategic thinking and a belief in getting back to banking basics is the secret both of Parex Group's strong ratings (Moody's "Baa3', Fitch 'BB+', Capital Intelligence 'BBB') and its avoidance of problems associated with the US sub-prime crisis and subsequent credit crunch. During the last few years when many of the bank's competitors in the Latvian market were pushing cheap consumer credit to all and sundry, Parex was concentrating more on promoting the old-fashioned virtue of saving amongst its account holders. That now looks like it was an exceptionally important piece of common sense in a market that's often fueled by hype.

"Yes, that was important from the very beginning," says Idelsons. "Unlike many of our competitors we are not part of any Scandinavian or other group. We are focused on making money, not about taking market share in retail loans."

One of the best advertisements for Parex's investment-led approach is the fact that Latvia's two richest individuals, Valery Kargin and Viktor Krasovitsky, were founders of Parex Banka, Idelsons believes. A recent exclusive deal to issue American Express cards in Latvia and Lithuania adds further clout to Parex's growing reputation as a safe pair of hands when some other banks are dropping the ball.

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FUNDS: Parex Asset Management wins at home, looks to CIS markets

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