Eastern grit nurtures Renaissance

Ram suffered from volatile equity markets, but its rebirth arises from strengthening markets in eastern Europe – as well as diversification into South Africa, writes Shaun Cumming.

Renaissance Asset Management (Ram) was a victim of the 2008 financial crisis. Performance was poor among its range of Russian specialist and eastern European funds. Rather than collapsing, however, the firm adapted by rolling out a new strategy. It decided on a strategic shake-up of staffing and what it could offer.

The primary aim was to diversify its offerings. The plan was to reinvent itself as a global emerging markets specialist, staying focused on its core Russian and eastern European products while also offering more from Africa.

The management shake-up appears to have ended with the arrival of Barbara Rupf Bee as chief executive officer in February. Rupf Bee previously headed HSBC’s emerging markets institutional business.

One of the first new arrivals, however, was Plamen Monovski as chief investment officer in 2010. He was previously an emerging market specialist at BlackRock. Monovski’s arrival also marked the rebirth of Ram as a diversified emerging markets investment house. (Focus continues below)

Although Ram is majority owned by Renaissance Group, the investment bank, Rupf Bee says in some instances Ram operates at a distance. “Of course, there are Chinese walls,” she says. “We are buyers of stocks, so you need that space. But on macro themes and on corporate governance, we borrow resources. When we are talking about stock-specific research, we have to deal with them at arms length.”

As the firm’s roots emerged from Russia and eastern Europe, its main offices are in London and Moscow and Rupf Bee’s time is evenly split between the two. But the firm operates offices throughout Europe and also South Africa.

While diversification is under way, Rupf Bee adds that the firm’s knowledge of Russia is also intrinsic. “The intent of Ram was to capitalise on our ground knowledge of locations around the world,” she says. “Up until 2006, it was taking investment themes in Russia, such as pre-initial public offering firms, financial firms and utilities, and wrapping them into funds for local high-net-worth individuals in Russia and around the world.”

Click to enlarge

But the 2008 credit crisis changed everything. The firm suffered as it was mostly invested in equities, which were sold down hard. Diversification geographically and through asset classes was an essential step in its evolution.

Rupf Bee adds: “In 2007 the Macquarie Group got involved through a joint venture in an infrastructure fund. It is an interesting join-up and is very much alive. We run the investment management separately, but work jointly on distribution. The team sits within the Ram context in Russia.

“Obviously, valuations of funds suffered in 2008. Learning from that experience, we needed to be broader. For example, it was no longer just about Russia. We had to go into other emerging markets, taking the helm in eastern Europe and Africa. We completed the acquisition of Griffin in 2012**.”

Taking over Griffin’s funds was a milestone because it had some long-established specialist portfolios that would sit well within Ram’s range. These included the Griffin Eastern European fund, the Griffin Ottoman fund and the Griffin Eastern European Value fund.

The Ottoman fund, named after the Ottoman Empire that ruled Turkey from 1299 to 1923, gives a clue as to where it mainly invests. But Rupf Bee says it is more diverse than simply Turkey. She says: “[The manager] also has allocations into neighbouring regions, in all that is relevant to its investment theme. In Turkey it is predominantly the financials sector, and energy is another area you will see.

“Then we have the eastern European equity allocation within the Griffin portfolio. If you look at the eastern European fund universe, consolidation is huge. For bigger houses, eastern Europe is a fringe market but that is why they are interesting, because they are not widely covered.

“This is why having people on the ground makes much more sense. You need to know the markets, this is where fund management adds the most value. We have offices of Renaissance Capital around the world and that is where the research flow comes from. We have people in Poland, Slovakia, Hungary and the Czech Republic. We are also building out Turkey significantly.”

Rupf Bee says eastern European markets could offer attractive growth prospects for investors. “What I find most astonishing is the increased corporate governance, especially in Slovakia and Poland. Also, compared with Russia, there is this emergence of a savings-orientated middle class. Travelling there, you can see the prosperity, although not everyone plays on level playing fields,” she adds.

Ram has always been an institutional investment house. Most of its investors were wealthy people, central banks and pension funds, mainly based in Russia. But as the firm restructured, brought in new people and diversified its offerings, it also made some significant changes to its client base.

These included launching funds that were available to retail investors. Rupf Bee adds: “Looking at the group now, there is a mix of offshore funds, but we are going increasingly into Luxemburg Ucits because of distribution and the increasing demand from retail and institutional investors.”

”Compared with Russia, there is this emergence of a savings-orientated middle class. Travelling there, you can see the prosperity”

This demonstrates a push to catch sophisticated retail investors willing to invest in offshore vehicles. But there remains a problem: typically, British investors have avoided offshore funds, mainly because of their complexity.

Tim Cockerill, the head of collectives research at Rowan Dartington, says there are several reasons why the British retail market is wary of offshore vehicles.

“Dealing with offshore funds can be difficult,” he says. “And all the more so when investment advisers are now used to straightforward dealing procedures. I can’t say if this is the case with Renaissance, but only last year I was having to fax instructions to Ireland for a fund deal.

“In addition, the ability to find information on the fund [and] how its invested can be harder, [while] access to the manager may be virtually impossible. That’s not to say all managers in Britain are easy to meet but at least there isn’t a physical barrier.”

Cockerill is also concerned about performance. He says it is not worth investing in offshore funds if they do not offer anything extra in terms of performance. “When I looked at the offshore fund sectors and their performance there was, in most cases, no advantage over onshore funds. Offshore [funds] were not offering anything I could not get onshore. That may have changed a little but most of the time investors want mainstream funds and onshore, the choice is already vast without a need to go overseas,” he adds.

It appears that Ram recognises this problem and Rupf Bee says the firm is working on finding a solution. “We are putting a lot of self-focus on getting our funds on to [traditional British retail] fund platforms. Our way to retail is through intermediaries and we are starting to get on to the platforms. The problem is that our Ucits funds launched [mostly] in 2010 and 2011, and before you can get on to a platform you need a good year or more of a track record.”

The Ram funds available to British investors have a mixed record. Over one year to March 13, 2012, one is a top quartile performer, three are second quartile, two are third quartile and one is fourth quartile, according to Morningstar.

Another question is posed by Ram’s stance of changing its business to try to gather more retail investors. Some could see it as part of a wider trend among asset managers that had previously ignored retail investors in favour of an institutional base, suddenly looking to attract retail money. The trend seems to have gained momentum since 2008.

But why do institutional fund managers want to capture retail investors? The answer might be that institutional investors, such as central banks and pension funds, may have curbed risk taking since the financial crisis. Such a scenario could provide an incentive for groups to try to grab retail money to plug a growth gap.

Ram’s march towards diversification under Rupf Bee is continuing apace. Two weeks ago, the group announced the launch of the Renaissance Frontier Markets fund aimed at covering 25 nations, including Argentina, Egypt, Indonesia, Kenya, Nigeria, Pakistan, Philippines, Thailand and Vietnam. Some of the main themes in the Luxemburg domiciled vehicle are infrastructure, telecoms, and commodities.

Rupf Bee says: “Given the group’s conviction towards Africa, we added a team who are based in South Africa.”

She says industries such as telecommunications departments are moving from their traditional bases in India and into Egypt. “It is quite a trade-off with risk. If you look at Egypt, for example, it is a fantastic opportunity if it can stabilise its political system. It has a fantastically educated population. Call centres are starting to move from Asia to Egypt,” she adds.

“The problem is the political environment. Otherwise, it is going to be a powerhouse because its proximity to Europe is very important. What will settled politics bring? Well, as its school systems are very liberal and everyone is educated in English, India will have to worry about its call centres.”

Risk assessments will have to be high on the agenda because of the nature of some of the countries the African team invest in. Egypt’s political and social divisions are well publicised but in countries such as Kenya and Nigeria, corruption must also be taken into account.

Rupf Bee says this is why the firm’s country analysts are so important to its success. “We are in a big analysing phase. What we need is a longer equity up-trend so that people can start recognising our stories.”

The excitement of working with emerging markets in Africa and eastern Europe is what encouraged Rupf Bee to leave her post with HSBC to join Ram.

She adds: “At HSBC I had responsibility for the emerging markets piece. For the last four years I ran the institutional side, bringing emerging markets to investors. I also worked with governments doing corporate governance, such as helping Brazil with its pension reforms.

“But I was much more interested in going back to the ground to look at frontier markets. That is what was missing for me, especially the African side. That is why I joined Renaissance. This is where my heart lies.”

Her goal is to make investors immediately associate Ram with Russia, eastern Europe, and Africa. Successfully entering fund platforms and selling more heavily on the British retail market would be a positive start to her new role, but fund performance will need to come good if it is to win over a cautious British retail investor base.

**19 Mar 2012 edit: Ram completed the acquisition of Griffin in 2012, not in 2011 as originally stated.


Renaissance Asset Management is a majority owned subsidiary of the Renaissance group. Assets under management stand at $2.8 billion (£1.7 billion) and it has a presence in Guernsey, London, Luxembourg Moscow and Switzerland.