Russians not hurrying to ditch mutual funds

Interview with Pavel Teplukhin, Chairman of Troika Dialog Asset Management

Despite a vicious economic crisis, Russians aren’t hurrying to ditch mutual fund investments, although some are exiting in order to raise short-term cash, one of the country’s biggest asset managers told Dow Jones Newswires in an interview.

“People are looking for pockets of liquidity. We’re seeing retail outflows of about 2.5% a month, a little below the market average,” Pavel Teplukhin, chairman of Troika Dialog Asset Management, said on the sidelines of the Russia Forum 2009 investment conference.

Russia’s benchmark RTS stock index plunged more than 70% last year, revealing the market’s over-reliance on foreign investors, who – spooked by Russia’s conflict with Georgia, government meddling in the economy and corporate governance scandals – left in their droves.

The exodus prompted commentators to call for a bigger pool of homegrown capital, with retail investors – largely from the emerging middle class and numbering around a million at present - a key component.

Despite the prospect of government tax breaks, skeptics say the majority of the population isn’t market savvy and won’t risk large amounts of cash on investment products they don’t fully understand.

Furthermore, savings rates have more than halved since 2000 as Russians took part in an unprecedented consumer boom, a trend that’s unlikely to change as Russia deals with its worst economic crisis for a decade.

Teplukhin said retail outflows witnessed by Troika are comparable to withdrawals of bank deposits with memories of previous economic crises still fresh in the minds of many Russians.

On top of that, credit isn’t as readily available, tempting some to tap cash they had put aside for a rainy day.

Nevertheless, Teplukhin sees related products like private pensions growing in popularity as the government offers sweeteners to individuals seeking an alternative to state-run schemes.

“Today is a time when, if you have cash, you can buy assets very cheaply.”

And despite last year’s disastrous performance, he’s sure investors will return once conditions improve.

“They have a very short memory,” he said.

In the meantime, Teplukhin reckons there’s at least some cause for optimism, with domestic demand – both public and private – still a major contributor to the economy even as prices for key Russian exports like oil and metals struggle.

He also welcomes signs from First Deputy Prime Minister Igor Shuvalov that government spending will be trimmed somewhat to protect state money stashed away in sovereign wealth funds.

“(The stability fund) will help keep inflation and interest rates low, encouraging investment and economic activity,” he said.

Troika has $7 billion in assets under management, $2 billion from retail investors and high-net-worth individuals and $5 billion from institutional clients.

Russian mutual funds contain 684 billion rubles ($19 billion), around 10% lower than a year ago and 20% off last summer’s high.

Dow Jones

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