Ben Aris in Moscow -
Russia's asset management business is up for grabs and the CEO of the Renaissance Group, Stephen Jennings, wants to make it his own with his new company Renaissance Asset Management (RAM).
The only foreigner in Russia to have been dubbed "oligarch," Jennings founded one of the most successful investment banks in the country in the mid-1990s with partner Boris Jordan. He has been in the thick of the booms and busts that followed, but his latest initiative is his second stab at building an asset management business in one of the most underdeveloped niches in Russia's financial system. "RAM will be the pre-eminent asset manager in Russia, emerging Europe and Africa," Jennings tells bne at the launch of the fund at the end of February. "A huge amount of development has already been acheived in Russia with equities, banks and the like, but asset management has yet to start. The largest firms in five-seven years time will be very large and very valuable."
The timing of the launch looks good and Jennings says he hopes to have $10bn under management within five years. The Kremlin launched a programme to reform Russia's capital markets and put in place many of the missing pieces, such as private pension funds to create domestic institutional investors. At the same time, following last year's crash Russia looks like it's at the start of a new super-cycle that could last a decade. The asset management business is a key part of most countries' economies, providing investment capital and pensions for the population, but in Russia it's almost entirely missing: the asset management business is only worth 4% of GDP, a fraction of its value in industrialised countries.
Jenning's first stab at asset management was Renaissance Investment Management (RIM), but it wasn't a big success as he "didn't get the people right" - a mistake he hopes to avoid this time round.
Plamen Monovski stands tall in the world of Eastern European fund management and joined RAM as chief investment officer-designate on February 1. Born in Bulgaria, Monovski turned up in London in the mid-1990s to study finance at the London School of Economics. After he finished, he spent a week working for the European Bank for Reconstruction and Development (EBRD) before being hired away by financial legend Stephen Zimmerman to run the $80m emerging Europe fund at Mercury Asset Management, at the time the biggest asset management company in the world. "I joined in 1997 and it was a baptism by fire. During the Russian crisis, the game changed from which stocks were outperforming to what were the chances that you'd be paid back on your GKOs [the state treasury bills most investors bought at the time]," says the soft-spoken Monovski.
The funds went through several metamorphoses as the company was bought first by Merrill Lynch and then US investment company Blackrock, but by the time Monovski decided to quit to take a rest at the end of last year, he was a household name in the finance world with more than $9bn under management. Jennings got wind of the fact that Monovski was free and was straight on the phone to him. "I know Stephen well, as we were one of his largest clients over the years. At first I was not interested as I wanted a rest, but Stephen was very persistent. He was bouncing around ideas and I got interested, as I felt that my work with the emerging markets was not finished. Things were still happening and I didn't want to wake up one day and find out I had missed it all," says Monovski. "Eventually I said: 'Lets do this'."
All to play for
The asset management business in Russia and the wider region is still up for grabs. There are a few extremely competent funds dedicated to Russia, such as East Capital and Prosperity Capital Management (both the top-performing funds in the world in the last decade), but overall there are only a tiny number of funds specialising in this chaotic part of the world.
The timing also looks good, as Monovski argues that the crisis has knocked Russia and the region back to the start of a decade-long super-cycle. In the last decade, Monovski says that in non-crisis years (eight out of 10), the worst that Russia returns is 20% and the average was just under 50%. And many of the funds' target markets appear in the top-10 performing markets in the world with Mongolia as the surprise star (the MSE20 index was up 1,696% between 2000 and 2010, more than double Russia's 727%).
The Russian stock market was brutalised during the global crash, losing nearly three-quarters of its value in September 2008. The market bounced back from its oversold levels in 2009, up about 130%, but Monovski argues that the market's growth is just getting going. Last year's gain looks like a lot, but if a market tanks by 80%, then it needs to grow by 400% to get back to where it started from and on a price/earning basis Russian stocks are currently the cheapest in the world. "The time to invest is now," says Monovski. "Emerging market discounts are currently at all-time highs. Russia had a horrible crisis, but unlike last time this crisis didn't decimate the economy... You will pay a lot less for growth and profits in Russia. We are certain that this market will grow for a long time."
Building on the group
RAM is not just a fund. To create a franchise, RAM will have to stay on top of the game and constantly create new products to fit the changing shape of its territory as it evolves. Monovski hopes to capitalise on the Renaissance Group's other five businesses, which include the flagship Renaissance Capital investment bank and a retail bank, to find opportunities and capitalise on them. "Firstly, we want to build an emerging-market franchise that can manage people's money, but will also fund itself from the new wealth in the emerging markets," says Monovski.
Monovski's name is already attracting the interest of international institutional investors who have worked with him at Blackrock, but the expanding wealth of businessmen in the region also makes for rich pickings for the fund. For example, in the recently released Forbes magazine annual rich list the number of Russian billionaires on the list has doubled in the last year to 62 and their wealth has also doubled. In parallel to RAM, Jennings has also set up Renaissance Wealth Management that caters to the investment needs of the super-rich in the region. RWM will be an important client for RAM. Currently, most of Russia's super-rich have to go overseas to find professional wealth management.
A bit further down the road, RAM will also sell its products to retail investors. The fund is in the process of getting UCITS 3 registration, which would allow it to sell its products to the man in the street in both Moscow and New York, which should significantly broaden the funds' investment base.
RAM comes into being inheriting $800m worth of successful products from RIM, including a financial institution fund, an infrastructure fund and a pre-IPO bond fund. More products are in the pipeline, such as an agriculture fund and distressed assets fund - both designed to take advantage of hot investment themes of the day. Still, it will take a while to get the new company on its feet. "Building up the fund is going to be a long slow process, as we are in the business of winning trust and you can only do that by consistent long-term performance," says Monovski. "The goal is to be the best in breed and give access to investors large and small to opportunities that are currently unavailable to them."
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