Prosperity Capital, the most successful portfolio investor in Russia and the former Soviet Union, is setting up an office in France to serve as its European marketing arm following the decision by the UK to exit the European Union, bne IntelliNews can reveal.
The move by the firm, which manages $3.5bn in assets under management, has been triggered by Brexit. Prosperity, which has offices in Moscow, London and the Caymans, may no longer be able to manage, or “passport”, its UCITS fund out of the UK capital when the Brexit transition period expires on December 31.
“We have a UCITS fund and it’s difficult to manage a UCITS fund from London,” Prosperity founder Mattias Westman told bne Intellinews in an interview. They [the EU] are going to make life difficult for funds that are not marketed from the EU.”
There are around 2,600 UK-domiciled UCITS funds, while over 8,000 currently passport into the country from the European Economic Area. Figures from this March (when the UK was originally meant to leave the EU), indicated about 300 financial firms had moved or were planning to move some of their business, staff, assets or legal entities from the UK to the EU with asset managers transferring more than GPB65bn ($80.6bn) in funds. Their main destinations have been Dublin and Luxembourg.
Prosperity’s team mulled different locations before settling on the French capital. “We talked about various options,” said Westman. “I guess Paris was easier because of the ease of travelling between the offices, plus it’s a nice place and a big market."
A long-term resident in London, Westman believes the EU is going to make it as difficult as possible for funds to continue to market and sell their products without a presence within the EU.
“If you are leaving the club, why should you be able to still manage the bar?” he said. “This is the most profitable part of business anywhere and they will be pushing to take over more and more of the financial services from London."
Westman, a Swede, has been investing in Russia for 27 years and launched his firm’s flagship Prosperity Fund 24 years ago. Before becoming a stockbroker, he served on the Russian desk of the Swedish Ministry of Foreign Affairs, having learnt Russian with the Swedish Armed Forces.
Prosperity’s Quest fund was the best performer globally for the decade ending December 31, 2009, with a return of 3,300%, according to data from Morningstar.
The hedge fund firm's latest earnings released this month to UK Companies House shows profits slumped to GBP2.64mn last year compared with GBP4.92mln in 2018. The firm has been hit by the recent global market slump but Westman says they have suffered very few redemptions.
Prosperity has always been a lean operation with a focus on purely Western institutional clients with long-term investment horizons. Clients in the past have included the largest US pension funds, European institutions such as the $1 trillion Norwegian Oil Fund, along with high-net worth individuals and family offices.
Westman is normally based in London but will relocate to Paris in the autumn to help with the launch of the new operation. Ivan Mazalov, Prosperity’s director of oil and gas, is also based in London but is currently on sabbatical until after the summer.
“For the clients, they really care about the fund management and they don’t really care where we do the client services,” said Westman. “The fund management and the analysts are largely in Moscow and I am on the phone and internet every day. If I am in London or Paris, it doesn’t make much difference.”
Westman, who retains offices on Cavendish Square in the West End, a swish area famed for its Georgian listed buildings, is closely monitoring the EU negotiations but doesn’t think they will close the London office.