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Eight years of successful investments in Eastern Europe Olle Olsson, Senior Sales Manager March 2006
Eight years of successful investments in Eastern Europe
Olle Olsson, Senior Sales Manager
March 2006
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East Capital
A leading investment house specialised in Russia, the Baltic States and Eastern Europe.
Company founded in 1997 by former executives at Enskilda Securities, the investment bank of the leading Scandinavian universal bank SEB.
Offices in Stockholm, Paris and Moscow, soon in Tallinn
International staff of 90 employees with Eastern European nationals at all levels of the firm.
Currently over 2.8 billion EUR (~27 billion SEK) in AUM.
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East Capital’s three fund families
UCITS funds Central EuropeBalkansBaltic StatesRussia & CIS
ExplorerFinancial Institutions
Bering Russia Fund
Russian Fund
Eastern European Fund
Baltic Fund
Balkan Fund
Amber Fund
Offshore funds
Special fund products
Bering Ukraine Fund
Explorer Property Fund-Baltic States
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Four open-ended public equity funds, soon five
East Capital Eastern European FundLaunch: 03/02
587m euro
East CapitalBalkan Fund
Launch: 10/04306m euro
East CapitalBaltic Fund
Launch: 06/98367m euro
East CapitalRussian FundLaunch: 05/98
928m euro
Status: UCITS III. Notification of cross-border activity in Austria estimated to be approved on March 27, 2006
Trading and pricing: Daily with no notice period
Identical fee structure in all four funds:
- Subscription fee: 2.5%
- Management fee: 2.5%
- No performance fees, no lock-up or exit fees and no other hidden fees
East Capital Turkish FundLaunch: 03/06
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Our Bering funds – two offshore funds for qualified investors
Vitus Bering – the explorer of far-away lands in Russia
Investment focus
2nd and 3rd tier Russian and CIS companies (Bering Russia) – ranked best equity fund in the world by Nelson Marketplace 4 quarters ending June 30, 2005 (89.4%)
Ukraine across all asset classes, including private equity and debt (Bering Ukraine)
Fund structure
Cayman-domiciled, semi-closed with quarterly liquidity
Exit fees – payable to the fund – for those investors who choose to redeem before 4 years have passed
Capped at 50 MUSD (Russia) and 100 MUSD (Ukraine)
East Capital Bering Russia Fund (launched June 2004)
East Capital Bering Ukraine Fund (launch in July 2005)
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Our private equity products
East Capital Amber Fund
- 12 MEUR private equity fund dedicated to Russian and Baltic consumer goods sector, started in November 2002 and now fully invested
- Main investments include a Russian clothing retailer and a Baltic fashion and styling group
Explorer Property Fund – Baltic States
- A 53 MEUR real estate fund targeting the Baltic states, started in June 2005, jointly managed by East Capital and Arco Real Estate, the leading real estate company in the Baltics
- Primary targets are properties in suburban areas or in other major regions of the three countries (A-/B+ locations)
Explorer Financial Institutions Fund
- A 327 MEUR private equity fund that will invest in the banking and financial sector in Eastern Europe, focused mainly on Russia and the former Soviet states
- The fund was launched at the end of November 2005 and is now closed for further investments
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A large, diverse and stable client base- More than 250,000 private and institutional clients from around the world
Institutional ~30%
3rd party distribution~50%
Direct private clients~20%
Around 200.000 indirect clients through agreements with around 50-60 partners
Examples of 3rd parties:
SEB, Dexia-BIL, Nordea, Swedbank, Banque de Luxembourg, Skandia, E-Trade, The Swedish Premium Pension Authority, SNS Fundcoach
Around 50 major institutional investors
Examples of institutions:
A $1.5 billion US philanthropy, the pension scheme of a major European country’s Postal Service, four of the largest life insurance companies in Finland
Almost 20.000 direct clients serviced directly by East Capital’s client service team
Examples of private clients:
Everyone from the smallest private investor ($30 minimum) to some of Europe’s most wealthy persons
The wide range of clients ensures the stability of the funds, something which isparticularly important in volatile equity markets such as those of Eastern Europe
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Investment philosophy and process
Investment philosophy Focus on absolute return without benchmarking, long term view Bottom-up stock-picking – with both value and growth in mind Overweight in high-potential small-caps, with maintained daily
liquidity in the funds High portfolio diversification in order to lower company-specific risk
Investment Process Macroeconomic and political overview, leading to a selection of
“themes”– Long-term investment theme: exposure to domestic growth
Bottom-up selection of stocks, in accordance with the “themes” Hands-on contact with the portfolio companies and their
management – frequent company visits
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Investment process
Right region
Right sector
Right company
ValuationGrowthManagementCorporate Governance
Right instrument
Direct / indirectCommon / Preferred
ReformsGrowthConsolidation
Macro-economicsPolitics
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East Capital Asset Management’s Investment Committee
Örjan Berner,
former Ambassador of Sweden to Russia, leading expert of Russian and Eastern European macroeconomic and political issues.
Bengt Dennis,
former Governor of The Central Bank of Sweden, Senior Adviser to SEB, leading expert of the Baltic States.
Carl Bildt,
former Prime Minister of Sweden, former High Commissioner in Bosnia and the United Nation’s special envoy to the Balkans. Leading expert on southeastern Europe.
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Major indices are not reflecting economic reality
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MSCI Eastern EuropeanIndex
GDP Breakdown 2004 East Capital EasternEuropean Fund
RUSSIA
POLAND
HUNGARY
CZECHREPUBLIC
RUSSIA RUSSIA
POLAND
POLANDHUNGARY
HUNGARY
CZECH REPUBLIC
CZECH REPUBLIC
TURKEY TURKEY
ROMANIA ROMANIAUKRAINE
CROATIA CROATIA
14 OTHEREE COUNTRIES
UKRAINE
11 OTHEREE COUNTRIES
Breakdown of the MSCI EM Eastern European Index vs. the countries’ GDP (2004) vs. EC EE Fund
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Industry diversification
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Russian stockmarket GDP Russia (est.) East Capital RussianFund
OIL & GAS
INDUSTRY
SERVICES
SERVICES
SERVICES
INDUSTRY
INDUSTRY
OIL & GAS
OIL & GAS
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Company diversification
Russian Energy According to UsRussian Energy According to the RTS Index
LUKOIL 34,90%
Tatneft pref; 1,10%
Ritek; 1,01%Ufaneftekhim; 1,15%
Rosneft-Purneftegaz; Bashneft pref; 0,93%Bashneft; 1,49%
YUKOS; 1,22%
Sibneft; 6,89%
Tatneft; 8,00%
Transneft pref 9,63%
Surgutneftegaz; 21,85%
Surgutneftegaz pref; 10,54%
Novy neft; 4,77%Rengaz holdings; 10,17%Rengaz holdings 2; 0,74%
Onako; 0,04%Orenburg ng; 0,40%
Saratov ng; 0,05%Saratov ng pr; 0,09%Tnk; 2,60%Udmurtneft; 0,03%Udmurtneft pr; 0,72%
Bashneft pr; 2,49%Bmb munai; 0,59%Caspian energy; 0,42%Evraz gdr; 0,98%Lukoil; 2,48%
Lukoil adr; 18,81%
Nelson resources; 1,84%
Novatek; 0,20%Novoil pr; 0,62%
Petrokazakhstan adr; Ritek; 1,68%
Surgut ng adr; 7,06%
Surgut ng pr; 1,03%
Surgut ng pr adr; 5,82%
Tatneft adr; 1,96%Tatneft co; 0,30%Tatneft pr; 2,42%
Transneft pr; 13,77%
Ufaneftekhim pr; 1,91%Ufimsky npz; 4,17%
Ufimsky npz pr; 0,39%Ukrnafta adr; 2,07%
Ufaneftekhim; 1,62%
Neftemaslozavod; 0,88%
Sibneft adr; 0,84%Nelson resources new;
0,85%
Yukos adr; 1,02%Yaroslav nos pr; 1,02%
Yaroslav nos; 0,17%
Valkyries petroleum; 0,83%
Ryazannefteproduct; 0,01%
Varyogan ng pr; 0,37%
Varyogan ng; 0,02%
Orenburgnefteproduct; 0,01%
Orenburg ng pr; 1,77%
Data from September 27th 2005
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Spreading of investments between several companies allows exposure to sectors with sometimes low liquidity and also lower the overall portfolio risk
The East Capitalsteel portfolio
Izhstal
Magnitogorsk MK
Chelyabinsk Trubny
Nizhny Tagilsky MK
Mechel Novolipetsk MK
Severstal
Vyksa
Source: East Capital, end of 2004
East Capital Russia Fund steel portfolio
Vladimir Lisin
Alexey Mordashov
Alexandr Abramov
Viktor Rashnikov
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26.6%
40.8%
69.4%
60.9%
27.2%
19.4%24.5%
35.2%
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RussianFund
RTS Baltic Fund Baltic 30 EasterEuropean
Fund
MSCI Balkan Fund MSCI
Perf
orm
an
ce i
n E
UR
Annualized performance since inception: East Capital vs. index
Russian Fund
Baltic Fund Eastern European Fund
Balkan Fund
Note: As of 31 January, 2006
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Performance since inception (May 1998)
SEK
East Capital Russian Fund
RTS-Index
Russian Fund
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Performance since inception (June 1998)
East Capital Baltic Fund
Baltic 30-Index
Baltic Fund
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Performance since inception (March 2002)
East Capital Eastern European Fund
MSCI EM Eastern Europe Index
Eastern European Fund
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Performance since inception (October 2004)
East Capital Balkan Fund
MSCI EM Eastern Europe Index
SEK
Balkan Fund
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East Capital Eastern European Fund
Risk/Reward analysis first three years
Return Risk Sharpe
East Capital Eastern European Fund 123,40% 13,111 1,846
Thames River TR Eastern European USD 85,71% 19,476 0,98
ABN AMRO Eastern Europe 71,46% 17,828 0,904
Baring Eastern Europe Fund 69,02% 20,322 0,793
Griffin Eastern European Value Fd 65,25% 22,436 0,704
Robur Eastern European Fund 64,00% 19,647 0,762
Nordea Eastern European Fund 57,49% 20,674 0,669
SEB Eastern European Fund 55,42% 21,24 0,636
Handelsbanken Eastern European Fund 48,31% 19,504 0,595
Source: Moneymate (18 March 2002 – 18 March 2005)All figures in SEK
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Awards
LIPPER 2006
Netherlands
”Best Emerging
Europe Fund over
Three Years”
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What East Capital offers – in summary
Superior performance since 1998
High diversification
A larger investment universe, covering more Eastern European countries
Full transparency in the funds and the asset management company
Broad and solid investor base
Wide range of funds enabling a tailor-made exposure
Innovative approach to client service (three large investor trips every year etc)
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East Capital in Austria
Notification of cross-border activity in Austria estimated to be approved on March 27, 2006
Initial partners are Raiffeisen Zentralbank, Erste Bank and Capital Bank, but we welcome more and negotiations with several other partners is under way
We are looking to hire a local, German-speaking sales representative for Austria
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Contacting East Capital
East Capital Asset Management AB
Kungsgatan 30, Norra Kungstornet
SE-111 93 Stockholm, SWEDEN
www.eastcapital.com
Olle Olsson
Senior Sales Manager
Telephone: +46 8 505 88 512
