Russia is an incredible combination of extremely low valuations, massive returns and the prospect of ongoing good returns, highlights Liam Halligan, Chief Economist at Prosperity Capital Management Ltd. There are not that many markets which offer investors all three. From an asset management firm sponsoring the marcus evans Elite Summit 2010, Nordic Pensions & Investments Summit 2010, Investment Consultants Summit 2011 and European Pensions & Investments Summit 2011, Halligan uncovers why family offices should consider investing in Russia and which assets could provide real value to them.
Why do you recommend investing in Russia?
Liam Halligan: Russia is a seriously underrated investment destination. Even though there are risks to investing there, they are very much reflected in the prices. We have been focusing on Russia since 1996, where in this period, our main fund returned an average of 23 per cent in dollars annually. Our special situations fund, which launched in 1999, has returned 43 per cent a year. This was the best performing fund in the world in any asset class over that period of time. Both are open ended funds which have maintained liquidity respectively, on weekly and monthly terms.
Instead of relying on general clichés which have been presented by the Western media, sometimes investors have to make up their own minds about where is a good place to invest and where is not.
What makes Russia so special?
Liam Halligan: There is an incredible combination of extremely low valuations, massive returns and the prospect of ongoing good returns. Russia is currently trading at seven and a half times its earnings, which is the lowest of any major stock market in the world and yet over the last 10 years, it has been the best performing market in the world. Even in 2009 when the economy contracted the market went up by 129 per cent.
That is what makes Russia special. It is a very resource rich country, not only in hydrocarbons, but also in terms of human capital, talent and education, yet considered less developed than some emerging markets. A great deal has changed in Russia in the last 20 years but Western investors have not yet woken up to that.
Where does the real value in Russian investments lie?
Liam Halligan: The real value lies on the second and third tiers, amongst companies that are restructuring in sectors that are consolidating.
Russia is emerging as a major retail market and will soon be the largest in Europe. We like Russia’s domestic power sector. Their electricity market is the fourth largest in the world. We believe that this sector will continue to be a source of significant gains and is a good way of gaining exposure to domestic growth.
While the Western world continues to stumble and register at best only sluggish growth, emerging markets will continue to surge, with Russia central to that growth; they will need energy as they go through an industrialisation phase.
What long-term investment strategies would you recommend?
Liam Halligan: My message to Chief Investment Officers and family office directors would be: Get into investments that governments cannot print more of. The only way some of the old industrialised economies can get out of their debts will be by inflating their currency. The Western world is going to be inflating away its debt and de-leveraging. Long-term investors should be looking at low leverage countries with low debts, where companies and consumers have little debt and there are lots of tangible assets. A country that really stands out under both of those headings is Russia.
Contact: Sarin Kouyoumdjian-
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European Pensions & Investments Summit 2011: http://www.epi-
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About Prosperity Capital Management Ltd
PCM is the world’s largest Russia-focused asset manager with $4.5bn AUM. All the money we manage derives from outside Russia – and our clients include family offices, private banks and sovereign wealth funds.