Wednesday, 30 July 2008

Foreign managers attracted to Russia by the region’s wealth

Financial News

Jason Corcoran in Moscow
28 Jul 2008

Russia’s crowded asset management arena is getting busier. France’s Société Générale Asset Management is the latest foreign investment business to explore launching funds there, as firms are attracted by the wealth being generated within the country.

Benelux’s Fortis, Germany’s Allianz, Italy’s Pioneer Investments, Austria’s Raiffeisen, Germany’s DWS, Iceland’s Glitnir and Baltic manager Parex have all launched Russia-domiciled funds in the past few years.

Russia’s emerging middle class and a boom in commodity prices have led to annual growth in retail asset management of 50% a year.

Société Générale Asset Management, which manages more than £262bn (€332.7bn) worldwide, may be about to join the fray by setting up a retail operation in Moscow, according to sources. It is believed to have applied to the main regulator, the Federal Financial Markets Service, for an asset management license.

Société Générale declined to comment on whether it was poised to enter the Russian fund market. A Paris spokeswoman said: “SGAM continues to study the various opportunities to intervene on the Russian market.”

The French group has distribution in Russia through its control of retail bank Rosbank, which has a network in most of the country’s regions.

However, domestic fund managers such as Troika Dialog Asset Management, which manages more than $10bn (€6.4bn) in retail, institutional and government funds, are sceptical of the chances of foreign participants succeeding. Pavel Teplukhin, chief executive of Troika Dialog Asset Management, said: “I assume that all of the global players will be in Russia pretty soon. Quite a number of global asset managers already operate in Russia and their success is rather mixed.”

Troika is Russia’s market leader in the management of retail funds, known as personal investment funds or PIFs. Teplukhin, who helped draft the Russian Federal Law on mutual funds, believes a lack of brand recognition is the greatest hurdle for foreign fund firms.

He added: “Their names are not familiar to the Russian audience and it is hard for the management of these banks to understand that. It would take a while before they can provide potential clients with a clear Russian record and before they win some brand recognition. Current market sentiments are not helpful either.”

One way for foreign funds to overcome the brand issue is to partner with a local institution.

Benelux’s Fortis and Germany’s Allianz have gone down this route with their tie-ups with St Petersburg-based investment bank KIT, and Rosno, which has a successful insurance business.

KIT Fortis, the fund management joint venture, has grown rapidly in assets under management to 60bn roubles (€1.6bn) since its launch in May last year. KIT Fortis has distribution agreements with more than 60 agents, such as VTB 24 and Citibank, in 650 outlets across Russia.

The growth in assets was helped by the transfer to the company of €640m ($1bn) from existing Fortis international funds and segregated accounts in the Nordic region. The assets were transferred under the terms of the acquisition of Fortis Investments of Dutch fund manager ABN Amro Asset Management.

Vladimir Kirillov, chief executive of KIT Fortis Investments, said the transfer of funds from ABN Amro was based on the success of its first Russia-domiciled equity fund. He said: “The fact that a large institutional client deposited €150m in the funds after the decision to transfer them to our company speaks for itself.”

Joint venture Allianz Rosno Asset Management, which has benefited from the expertise of the German group’s Allianz Global Investors, has grown to assets under management of about $700m.

It was one of five managers awarded 1.5bn roubles by the Russia Venture Company, which was set up by the Government to revitalise Russia’s industrial base.

Pioneer Investments, the funds subsidiary of Italy’s UniCredit, has set up a Moscow operation and hired local managers to run its domestic fund range. Austria’s Raiffeisen Capital Management, which manages €40bn, is one of the few foreign participants with brand recognition through its Russian retail banking network and its acquisition last year of Impexbank, Russia’s seventh largest bank.

Raiffeisen, which has been investing in Russia since 1994, has a local fund management subsidiary staffed by three fund managers and two analysts. Through Raiffeisen Capital Moscow, Russians are being offered locally domiciled bond and equity funds.

Troika thrives on connections

Financial News

Jason Corcoran in Moscow
28 Jul 2008

The Russian investment bank benefits from privatisations

Andrei Sharonov, managing director and chairman of the board of directors at independent Russian investment bank Troika Dialog, knows more than most about the links between Russia’s public and private sectors. He served in the Government for a decade, including nine years as Deputy Minister of Economic Development and Trade.

Troika’s status as, in observers’ eyes, the Kremlin’s preferred investment bank has been cemented by its leading role in the recent sale of a 25% stake in state-controlled carmaker AvtoVAZ to France’s Renault, its mandates from the break-up of the electricity monopoly UES and its involvement in the privatisation programme of the state-owned rail giant RZD.

The deals have propelled Troika to the top of the Russian mergers and acquisitions league table for the first six months of the year, according to data provider Thomson Reuters.

Sharonov said: “Troika is in a good position, but there are some sectors in the Government where we have no mandate and it proves the market is competitive. There is no preference in general for the participation of investment banks in deals with the Government.”

Troika’s owner and chief executive, Ruben Vardanian, has long held links with several state-owned industries as well as members of the siloviki, the so-called securities services faction in the Kremlin. He is also a member of the board of state-owned arms agency Rosoboronexport and has close ties to its chairman, Sergei Chemezov.

An important Kremlin player tasked with reshaping the economy, Chemezov sits on the board of several Rosoboronexport-controlled enterprises such as Sukhoi Civil Aviation, which is leading the Kremlin-backed project to create a new passenger plane, and RusSpetsStal, a specialist steel producer with military applications.

Sharonov, who was appointed to the bank a year ago, retains seats on the boards of the utility UES and the airline Aeroflot.

Sharonov’s role is to act as a bridge between the bank and the state, and to attract investments into Russian companies in utilities, automotive, telecommunications and high technology sectors. He said: “We are glad to be involved in such projects providing a valuable link to the private sector. It’s a pro-market activity and we try to involve first-class investors and producers and to increase competitiveness and financial stability for the target.”

Having presided over the sale in February of a 25% blocking stake in AvtoVAZ worth $1.16bn (€740m) to Renault, Sharonov said Troika hoped to clinch a similar deal for truck manufacturer KamAZ. He said: “KamAZ could be developed as a truck manufacturer with one of the big boys from the west. We are looking for a strategic investor and there are talks with a number of interested parties.”

Both AvtoVAZ and KamAZ are large Soviet-era manufacturers located in the neighbouring Volga regions of Tatarstan and Samara. However, unlike AvtoVAZ, KamAZ is controlled by its management, which has built up a stake of over 50%, with the help of Troika. The Government owns about 30% and has said it may sell its stake through a London listing.

Troika, along with Morgan Stanley, is also one of the two co-ordinators of the upcoming $700m (€445m) initial public offering of TransContainer, the cargo subsidiary of RZD. Sharonov said Troika was also putting together a debt syndicate for RZD to address the company’s 500bn rouble (€13.6bn) investment programme.

Sharonov pointed to privatisations of electricity grid UES as a template for future transactions involving government enterprises. He said: “The example of UES has been a good template for future privatisations in so far as unbundling a monopoly and attracting private investors. The final hurdle will be price liberalisation, which will be painful for citizens and companies involved.”

Troika also has its eye on the Middle East and Asia. In March it set up a Kuwaiti-Russian business forum, and it intends to open a Dubai office next year. Troika is also setting up a $1bn infrastructure fund and seeking investment from Singapore sovereign wealth fund Temasek Holdings.

Troika Dialog UK, its London operation, has been boosted by a number of hires. Douglass Welch and Svetlana Lokhova have both joined from Citigroup as head of equity derivative sales and fixed-income sales associate, respectively. Andrew Keeley has relocated from Moscow as head of financial institutions research.

The privately owned bank, which has previously rejected overtures from western suitors, is playing catch-up with its Russian rival Renaissance. It has recruited the Kremlin’s PR advisers Ketchum to improve its communications and spent money on its inaugural Russia forum in January and an event at Davos, Switzerland.

Its staff in Russia has doubled to 1,500 staff over the past 18 months. Nick Harwood, former head of equities for central and eastern Europe, Middle East and Africa at Citigroup, will join Troika in mid-September to take up a role as deputy head of global markets.

Jacques Der Megreditchian, head of investment banking and global markets at Troika, said Harwood would be responsible for developing the bank’s product range, distribution for international clients and its move into new markets. He said: “We needed to create a deputy position because we are experiencing strong and rapid growth. We are opening in Kazakhstan, Singapore and we will set up in Dubai in 2008.”

Tuesday, 22 July 2008

Western Workers cash in on Russia

Guardian Weekly

Tuesday July 22nd 2008

Many professionals in the US and western Europe are considering a move to Russia, where high energy prices have sparked a boom in the economy and lucrative career opportunities abound. Jason Corcoran reports

Some foreign professionals can expect to double their incomes in Moscow. Photograph: Getty Images

As the US enters recession and many European economies attempt to cope with financial meltdown and a collapse in housing prices, Russia goes from strength to strength. A boom in consumer spending, oil tilting towards $140 a barrel, a high growth rate, coupled with success in football and the Eurovision song contest, have put the spotlight on Russia in 2008.

Western bankers in particular are charging to Moscow to cash in on a record number of lucrative takeover deals, as London and New York have increasingly become graveyards for the major financial institutions.

Jonathan Astbury, a managing director at the headhunter Sandton Group, which works with Goldman Sachs and Société Générale, said financiers are being incentivised to defect to Russia.

He said: "This is a slight premium compared to New York and London but the main benefit is that they are taxed at just 13% across the board, so they are significantly better off in real terms. Certainly, in career terms, we feel the continued malaise in western markets – notably the UK and North America – is making many bankers contemplate eastern Europe, Asia and the Middle East as the main viable career options in the short term."

Astbury has detected lots of movement by expatriates between places such as Hong Kong, Dubai, Mumbai and Moscow: "Once a person has made the emotional decision to try an overseas move, subsequent relocations then seem less daunting," he says. This was very much a characteristic of the 1980s and 90s when Hong Kong, Tokyo and Singapore saw a major influx of expatriates to staff roles, many of whom stayed to build long-term careers within the region.

Russian banks Renaissance Capital and Troika Dialog have doubled their headcounts over the past 18 months, often looking overseas for expertise, in a period when the world's biggest financial institutions have been forced to slash personnel in the wake of the credit crunch.

Andrew Keeley, head of financial institutions research at Troika, has spent six years in Moscow, and now divides his time between the Russian capital and London. "Bankers moving into Moscow from the west can expect to double their incomes because a major skills shortage still exists here," says Keeley, who comes from Kent.

The top bankers in Russia can command about $8m on two-year deals, according to recruiters. More junior staff involved in sales, trading research and IT earn similar rates to London but benefit from low taxes and higher bonuses.

High energy prices have ignited the economy and wages are rising across the board to keep pace with inflation. The boom has spread from oil and gas to the consumer sectors as Russia's rising middle class has developed a voracious appetite to buy cars, refurbish their apartments, eat out and go on holidays.

Western retailing giants such as Starbucks, Wal-Mart and Carrefour are waking up to the opportunity and have opened outlets or representative offices in Russia over the past year. Yet, Russia can't transform Moscow into a financial centre to rival New York or London overnight, nor can domestic retail chain X5 rapidly become a Tesco.

There is a skills deficit across the board in management, financial services, extraction industries, telecoms, IT – and that's where the western-educated and experienced middle managers come in.

Luc Jones, a partner at Antal International, a global recruitment firm active in Russia since 1993, places expats in retail banking, legal, auditing and financial services. Jones says: "Multinational firms have realised they are not going to make big money in the US and western Europe and we have seen a decoupling effect with markets like Russia, where they can still make big returns."

Adam Robinson recently quit his job as head of PR for the London Metal Exchange to join Moscow public affairs agency Mmd. "In hindsight, it was a good time to leave with the credit crunch really biting. I know companies at home are tightening their belts." Although he arrived three months ago, he says that he hasn't seen much of Russia's notorious bureaucracy apart from the three pages of forms he filled in at the dry-cleaners.

Recruiters say that being able to converse even a little in Russian is a big advantage socially and professionally but not essential for working in large corporations.

Russia's visa system has long been a regular feature of expat life. Annual trips to renew year-long multiple-entry visas usually required a welcome jaunt to a neighbouring capital such as Riga in Latvia.

However, the rules have already been tightened this year and those on business visas are not allowed to spend more than 90 days in Russia at any time without either a residence permit or a work permit. Foreign nationals on visa runs also have to return to their country of origin to renew.

Visas have been an issue for expats working at TNK-BP, the joint petroleum venture where BP is battling for control with four Russian billionaires. The Russian shareholders argue that management allows preferential treatment of foreign specialists while discriminating against Russian staff, who they allege have received inferior pay and conditions. Visas for 150 foreign staff are due to expire in July and have not yet been renewed. A further 148 international experts seconded to the venture from BP have been locked out of the office since March.

Between Moscow and Munich

New Yorker James Wilde is a career expat, having lived overseas in Austria, Germany, France and Brazil for the past 13 years. A director previously at BT Global Services in Munich, he was tempted to Moscow eight months ago by an offer to work as a financial controller at MTS, Russia's largest mobile operator.

The opportunity to work at a fast growing company, with operations as far afield as Uzbekistan and Armenia, was irresistible.

He says: "I also was excited about coming to Russia for the cultural experience. I had been to Russia several times before, to climb Mt Elbrus and heli-board in the Caucuses as well as visit friends in St Petersburg."

Wilde, 37, has immersed himself in Moscow life despite working up to 60 hours a week. A keen language student, he spends six hours a week learning Russian from scratch.

Moscow is easily the most expensive place Wilde has lived in for groceries and accommodation, but his remuneration package and the flat tax rate of 13% has more than compensated.

"The other thing I like about it is that if I need to return to my place in Munich I can do it relatively easily, whereas in Brazil it was always two days of travel," he adds.

"Some particular negatives are the nightmare traffic and the obsession with money. The positives are that the people are very motivated and funny, and once you know some locals well you find a warmth and depth of soul that is really fantastic."

Sheremetyevo flies into the 21st century

Financial News

Jason Corcoran
21 July 2008

Letter from Moscow

Marathon queues, stony-faced immigration officials, lost baggage and creaking infrastructure may soon be a thing of the past at Moscow’s main international airport, Sheremetyevo.

The airport, which hasn’t altered much since the Soviet era, is sprucing itself up and trying to improve its image as it prepares for a possible flotation.

Travellers no longer have to face up to three hours snarled in traffic on the Leningradsky highway into the city following the introduction last month of a direct rail link.

State-run Russian railway operator RZD invested more than $200m in the project, an amount matched by private investors. The public-private partnership is thought to be the biggest of its kind in Russia.

The shuttle train into central Moscow will depart from the new business district know as Moscow City, the equivalent of London’s Canary Wharf.

In a recent note to investors, Peter Håkansson, chairman of Swedish fund manager East Capital, said: “It will feel like a real luxury to have an exact travel time, compared with the current situation. The journey to the airport can take anything from 30 minutes to three hours.”

Håkansson is not the only relieved Russia cheerleader. Domestic investment banks regularly bus thousands of investors into Moscow and will be pleased to see a welcome mat being laid out and the demise of the local taxi mafia.

Sheremetyevo, the home of state carrier Aeroflot, has been losing business for years to Moscow’s other airports, Domodedovo and Vnukovo, as airline travel has boomed. Domodedovo, in particular, has raised the bar. It is Russia’s largest airport in terms of both cargo and passenger traffic with 18.76 million passengers last year – up 22% from 2006.

The airport is efficient, light, airy, and has had a rail link for a couple of years. Subsidiary companies dedicated to commercial real estate and hotels have turned the airport into a thriving retail operation.

As foreign airlines are presented with more options in the capital’s airports, they are searching for those with the best infrastructure, in the hope of attracting vital passengers in a market with shrinking margins.

German carrier Lufthansa, which flies to nine destinations from Moscow, switched operations from Sheremetyevo to Domodedovo in April.

The new Terminal 3 at Sheremetyevo, which is expected to open next spring, will serve anchor tenant Aeroflot, and other members of the SkyTeam Alliance including Alitalia, Air France, Delta, KLM and Korean Air.

The passenger capacity is 12 million a year and it is expected to reach its maximum capacity in a year after opening.

Sheremetyevo is a state-controlled entity and management hopes the Government will take the risk and sanction the proposed initial public offering, or the sale of stake to a strategic investor.

The company is bringing on board three independent directors as part of a government initiative to overhaul corporate governance at state-owned companies. Ruben Vardanyan, chairman of investment bank Troika Dialog, Anna Belova, deputy general director of Siberian Coal and Energy Company and Vladimir Dmitriyev, chairman of state development bank Vneshekonombank, will join Sheremetyevo’s board.

Sheremetyevo general director Mikhail Vasilenko said last month the company could be ready to float by the end of the year, when investors might be able to buy at least 25% of the airport’s stock.

The airport estimates its current value at $1.5bn to $2bn. If the Government approves the move, Sheremetyevo will be the first publicly held airport in Russia.

Troika taps into high growth

Financial News

Jason Corcoran in Moscow and Dawn Cowie
21 July 2008

Russian bank Troika Dialog has made hires for its private banking and derivatives sections as it forecasts revenue growth of 35% for its global business in as little as three years.

Troika has recruited Renaissance Investment Management’s head of wealth management Alexey Ischenko as part of big push in private banking.

Pavel Teplukhin, Troika president and chief executive of its asset management arm, said: “Business is booming. We plan to expand our 20-strong private banking sales team by a factor of 10 within four years.”

Troika manages in excess of $10bn (€6.3bn) in institutional, retail and government funds, while rival Russian bank Renaissance manages $6.5bn mainly for high net worth individuals and has recently lost five of its senior fund management executives. Renaissance said it was formulating a strategy to double assets to $12bn next year by focusing on large mandates from corporate accounts.

Troika has also hired Douglass Welch from Citigroup as head of equity derivative sales and will focus on plain vanilla futures and options products.

Jacques Der Megreditchian, head of investment banking and global markets at Troika, expects this market to grow as products such as futures on government debt and commodity futures are introduced. He said Troika has a 15% to 20% share of the Russian futures and options market.

Wednesday, 9 July 2008

Red Star enjoys happy third anniversary

Business New Europe

Jason Corcoran in Moscow

July 9, 2008

A detsky sad, or kindergarten, is an unlikely neighbour for a Russian hedge fund, but James Fenkner is not fazed by a little background noise.

The founder and chief investment officer of Red Star Asset Management runs a friendly and informal investment shop on an unassuming residential street situated between Moscow's boulevard and garden ring roads. Red Star's team of seven have their heads buried in work as two-dozen two-year-olds run about shrieking seven floors below. It's also a family affair - Fenkner's sister Elizabeth plays a key role as the head of marketing.

The firm was set up in 2005 after Fenkner quit Troika Dialog where he had served seven years as head of research and initially as chief strategist. "The market was just coming out of deep crisis and there were just four funds in Moscow," recalls Fenkner. "I had gotten one of the best deals from Troika because that's where I met my wife. I left because brokerages are a young's man game."

The firm launched the Red Star Double Alpha Fund, a long/short relative-value vehicle targeting equities in Russia, Eastern Europe and the former Soviet Union. Its investment objective has an absolute return target of 18% to 22%, with volatility less than that of the region's equity markets.

The fund's main backer - Erste Bank, an Austrian retail bank with a network throughout Central and Eastern Europe - came on board after Red Star's US partners pulled out. Red Star's investors are mainly institutions and the firm has a few high net-worth clients.

Happy anniversary

May marked the third anniversary of the fund, which has registered a total return of 77%. The annualised return is 21% and volatility has been 12.6%. Fenkner is keen to make a marketing push for more clients now that funds under management have reached $100m and the firm has post the all-important three-year performance numbers under its belt. May also proved to be fund's best so far, with it's net asset value up 9% due mainly to the rally in Russia's energy stocks. Most of Russia's oil majors rose by over 20% due to record high oil prices and an expectation of a cut in taxation.

Fenkner feels the upswing to Russia's oil sector could be short-lived unless the modest $5bn tax relief amount being offered by the government is increased dramatically. "For the winning streak in oils to continue, the government must play for big money rather than tokens. Discussions with a number of analysts have convinced us that the ante must be upped to $20-25bn for oil production growth to pick up materially."

Red Star's preferred bets for greater taxation relief are oil field service providers and Surgutneftegaz, which has one of the worst production growth track records. Gazprom, the world's third largest company by market cap, is the fund's biggest holding.

With the restructuring of the electricity grid UES almost complete, Red Star is betting that hydro-electricity company RusHydro will become the new proxy for the sector. "RusHydro has been a drag on performance recently, but should be the biggest beneficiary from the break-up of UES on June 6," says Fenkner. " It should be the most profitable of the utilities and it currently trades at a 40% discount to its EM hydro peers."

Fenkner, who is 42. first arrived in Moscow over 13 years ago along a circuitous route taking in the Baltics and the Czech Republic. Back in the US, he had been a fixed income analyst at US mutual fund giant Fidelity after graduating with a degree in economics from California State University, Sacramento and a masters from Tufts University. His original plan in 1993 was to come to Lithuania for a year to work as a Soros Foundation lecturer in economics at Vilnius University. "I was teaching 18- to 20-year-olds at the time and they used to tell me that the Russians had two heads and ate their own children. The level of disinformation was enormous," recalls Fenkner.

The adventure continued when he took up an offer to help set up a brokerage in Prague call Atlantik Financial Markets. Then in 1995, Fenkner came to Moscow and had stints as head of research at AIOC Capital and Robert Flemings.

Bernie Sucher, a fellow American, lured him to work as chief strategist at Troika Dialog, which Sucher had co-founded. Under his direction, Troika's research focused on corporate governance and the opportunities and risks which any change in corporate governance provides to investors. "For a brokerage to be involved in corporate governance was rare. As the environment has matured, the interests of corporate clients has become a more important component of the brokerage business," says Fenkner.

Troika took up some unpopular causes, including backing former Yukos oil tycoon Mikhail Khodorkovsky, who ended up in prison after falling foul of the Kremlin. Fenkner believes the "heady days of corporate governance" are long over with the expulsion of shareholder activist Bill Browder of Hermitage Capital and because Russian corporates have made efforts to reform and evolved to more classical valuations.

Red Star's fund employs market-based activism in its investments. If the firm doesn't like a stock and it's expensive, they tend to short it instead. The fund uses a disciplined approach to invest long in securities that they believe to be fundamentally undervalued and to short securities which they believe to be fundamentally overvalued. He currently has seven short positions, including four in Russia.

Fenkner intends to continue at helm, because it is what he likes to do. He also has his own money invested in the fund, which, he says, "helps keep the mind focused" on performance.

Thursday, 3 July 2008

Russia's new revolution

The Independent

Tuesday, 1 July 2008

Bankers were thought to be facing tough times after the credit crunch. But in Moscow, where business is booming, Brits are being attracted by soaring salaries. By Jason Corcoran and Nick Clark

It has been a very good year to be Russian. The national football team sparkled at Euro 2008, it secured the unrivalled musical accolade of winning the Eurovision Song Contest, and while the markets around the world disintegrate, its own economy has continued to boom.

Soaring consumer spending, oil past $140 a barrel, record numbers of mergers and acquisitions (M&A) and a high growth rate means the financial focus is firmly on Russia in 2008.

Investment bankers in the West are charging to Moscow to cash in on the rise of lucrative takeover deals, as London and New York have increasingly become graveyards for the bulge-bracket institutions. "Foreign bankers are pouring into Mos-cow, that's where the action is," one capital markets professional said yesterday.

The Russian investment banks Renaissance Capital and Troika Dialog have doubled staff in the past 18 months, often looking abroad for expertise, at a time when Western bulge-bracket institutions have been forced to slash headcount in the wake of the credit crunch.

The latest big-name banker to make for Red Square is Nick Harwood, the former head of equities for Central and Eastern Europe, the Middle East and Africa at Citigroup. Mr Harwood will take up a post as deputy head of global markets at Troika Dialog, a Russian investment bank known for its close ties to the Kremlin, in mid-September.

Banks in Moscow are known to offer bankers packages that are well above market rates in the West, yet Mr Harwood, who has worked for Citigroup around the world, said remuneration had not influenced his decision to move. He said: "I am leaving a global market to work in a regional market, but the role will have a much wider remit than equities. Moscow is a very dynamic city and Russia now has the energy of a major economic superpower."

Chris Harvey, the global head of banking at Deloitte, said: "Bankers from the UK are increasingly targeting the emerging markets, especially Russia. The economy is modernising, and while it is not necessarily making headlines in the West, there is a lot of mergers and acquisitions and project finance activity. The country is moving further into the 21st century, and barring micro-economic shocks should continue to grow."

Andrew Keeley, head of financial institutions research at Troika, has spent six years in Moscow, and divides his time between the Russian capital and London. "Bankers moving into Moscow from the West can expect to double their incomes because a major skills shortage still exists here. It's a different culture and it's very dynamic and there are other benefits too," said the 35-year-old from Kent.

This year's battle for banking talent in Moscow has been ignited by the state-controlled bank VTB's move into investment banking. VTB, which raised $8bn in a listing on the London Stock Exchange last year, poached at least 60 bankers from Deut-sche Bank in Moscow to staff its new operation. The German bank responded by hiring scores from American and European rivals, such as Unicredit, UBS and ING. VTB's chief executive, Andrei Kostin, said in March that the group will invest $500m (£250m) and hire 400 people in the next two years to expand its nascent investment banking business.

A source close to VTB said: "Some guys under 30 have arrived without much experience. It's ridiculous. They have doubled their income to $2m a year overnight." The top rainmakers in Russia can command about $8m on two-year deals, according to Jonathan Astbury, a managing director at the headhunter Sandton Group, which works with Renaissance, Troika and Goldman Sachs. He said: "This is a slight premium compared to New York and London, but the main benefit is they are taxed at just 13 per cent across the board, so they are significantly better off in real terms. Certainly, in career terms, we feel the continued malaise in Western markets, notably UK and North America, is making many bankers contemplate Eastern Europe, Middle East and Asia as the main viable career options in the short term."

Some are even commuting, according to senior bankers. One said: "Some guys coming from the West find the transition pretty hard." He said the two overnight flights from London on Sunday nights were increasingly filled with bankers getting in to start work in Moscow on Monday morning. Some of those were on the return flight on Friday afternoons, he said.

One senior UK banker, who has worked in London, New York and Hong Kong, moved to Mos-cow in 2006. He said: "The acceleration of people moving occurred in 2005, and now it is fairly common, including those that commute from London."

It is approaching a decade since the 1998 financial crisis, when the rouble collapsed, the fledgling stock market crashed and the government defaulted on its bonds. The resulting meltdown sent many expats fleeing to Moscow's Sheremetyevo Airport, but the banks have returned, tentatively at first, but emboldened by a fast-growing middle class and a more stable economic and political climate.

Marcus Svedberg, chief economist at East Capital, an asset manager that focuses on Eastern Europe, said: "Ten years ago, the country was nearly bankrupt; now the economy is dynamic and, despite what is happening elsewhere, the growth has been accelerating this year."

As an illustration of some of the advances in the Russian economy, which is based on its oil and gas reserves, Mr Svedberg pointed out that GDP in Russia had risen from $271bn in 1998 to $1.6 trillion this year. At the same time, debt has fallen from 50 per cent of GDP to 3 per cent. Inflation is down from 84 per cent to 10 per cent, while the interest rate has fallen from 150 per cent to 11 per cent.

The country now has an oil fund that has so far invested only in AAA-rated bonds. It is believed that when the mandate is renewed in October, the fund will have a much more aggressive buying strategy.

The American banker Nick Jordan was lured by Lehman Brothers last year from Deutsche for a reputed $10m a year to run its Moscow office. Mr Jordan is based in London but spends three weeks a month in Moscow. He said: "Over the last 15 years banks have moved from being local bond hedge funds to being well-rounded wholesale, commercial and retail banks. It's adding another piece to the puzzle."

Russia's capital markets have been largely insulated from the global credit crunch. M&A has filled the vacuum left by the fall-off in IPOs.

Richard Hainsworth, the founder and general director of RusRating, the bank rating agency, has seen many expats come and go since arriving in Moscow in 1982. Mr Hainsworth's advice to new arrivals in Moscow? "Take a holiday in December, when it gets dark, to Egypt. It makes a big difference. Try to have a lot of patience and count to 10 before reacting."

'It was a culture shock, but I anticipate being here for some time' - Bernard Abdelmalak, Renaissance Capital

From his office on the 46th floor of Moscow City's Naberezhnaya Tower, the banker Bernard Abdelmalak could be forgiven for thinking he was working in Canary Wharf.

The Russian capital's emerging business district, two miles west of the Kremlin on the banks of the Moscow river, is styled on Canary Wharf, although much of the vast development is still a building site.

Mr Abdelmalak, who left his job at Citigroup in London, his home town, a year ago, works for the Russian emerging markets bank Renaissance Capital, which recently shifted most of its workforce to the Presensky district of Moscow.

"Moving here has been a culture shock, and I miss my family and friends, but there is plenty of upside, such as this view and working for a dynamic investment bank in such a fascinating and fast-paced city," he said.

Remuneration is a large part of the upside for bankers trading places from London to Moscow. Mr Abdelmalak, 31, has benefited from a generous increase in salary coupled with a reduced tax rate of 13 per cent.

Renaissance is among a handful of financial institutions, such as Lehman Brothers, Citibank, Standard Bank, KPMG and VTB, that have recently opened offices. Mr Abdelmalak lives in the centre of the city and misses the hubbub of working near the busy commercial thoroughfare of Tverskaya, the city's main artery into Red Square. He said: "There are no shops, no restaurants, no bars, just one Starbucks and two industrial-size canteens, but that's what Canary Wharf was once like."

His position as head of equity product control involves looking after the bank's trades in Africa, as well as its bonds and repos operations. He regularly travels to Kiev, Lagos and Nairobi. Soon that is likely to include Amaty in Kazakhstan.

He is routinely working till 9pm on Mondays and Tuesdays before client and colleague socialising begins mid-week. He takes Russian language lessons two or three times a week. "Life is very different to London. I am out of my comfort zone."

Mr Abdelmalak is taking a long term-view. "If the market here holds as well as it has so far in the global credit crisis, I anticipate being here for some time yet," he said.

Jason Corcoran

Fund launched to track oligarch assets

Wealth Bulletin

July 1 2008 - By Jason Corcoran

Ukrainian investment firm Concorde Asset Management is aiming to attract $120m to a new fund investing only in companies controlled by oligarchs who wield significant influence on local business and politics.

The Olihagarch or "Oliharkh" fund, will buy shares of large financial and industrial groups owned by wealthy Ukrainian businessmen who have growing influence in the country's political sphere.

The fund will track the market value of publicly traded assets falling within the scope of Ukrainian financial-industrial groups, which are owned by a few of the country's seriously rich.

The idea could be a winner. In the late 1990s, Russian oligarch companies significantly outperformed the indices. However, following the election of Vladimir Putin as president in 2000 this trend ended when many oligarchs fled the country and were jailed.

Ukraine's oligarchs are in a better position than their Russian forebears: while Russia's oligarchs were close to government, many of their Ukrainian counterparts are actually in government.

Local billionaire Rinat Akhmetov was in 127th place in the Forbes ranking of the richest people on the planet. And according to the ratings of the Polish magazine Wprost, three Ukrainian billionaires are among the 20 richest people in Eastern Europe.

Concorde is a subsidiary of Concorde Capital, one of the two leading domestic brokers operating in Ukraine.

Troika hires Citigroup equities head

Financial News

Jason Corcoran in Moscow

30 June 2008

Citigroup’s head of equities for central and eastern Europe, the Middle East and Africa is quitting to join Russia’s Troika Dialog in the latest defection from the investment bank.

Nick Harwood led Citigroup’s move into Turkey with the acquisition last year of local broker Opus Menkul Degerler and helped the bank set up offices this year in Kenya and Nigeria.

Harwood’s exit comes after the the bank’s co-head of global credit markets, Mark Watson, left to “pursue new opportunities”, and the departure to UBS of Dmitry Vinogradov, head of research, strategy and banking in Moscow.

It emerged last month that former Russia country head Stuart Harley quit the bank in February, while co-head of equity research Mikhail Seleznev and equity sales director Sergei Suverov left to join Deutsche Bank.

London-based Harwood, who is on gardening leave, arrives in Moscow in mid-September to take up a role as deputy head of global markets at Troika Dialog. He will be responsible for developing the bank’s product range, distribution for international clients and its move into new markets.

Citigroup is understood to be looking at internal candidates to replace Harwood.

Russian billionaire behind wealth management deal

Wealth Bulletin

27 June 2008 - By Jason Corcoran

Russian billionaire George Piskov and his partners have sold a 80% stake in Uniastrum Bank for $576mn (€371m) to the Bank of Cyprus.

Piskov (pictured below), an aviation engineer- turned businessmen, set up the Uniastrum in 1994 with two friends Uniastrum president Gagik Zakaryan and Oleg Belousov.

The fast growing bank, which now 220 branches across Russia, has focused on retail banking to Russia SMEs and the money transfers business. It has also branched out into the international wealth management business and set up Uniastrum Capital in London in 2001.

The owners decided to split its money transfer business Unistream off after the volumes jumped from $260m in 2004 to $750m in 2005. It was sold to Aurora Russia, a private equity firm, last year

The bank made the headlines in January 2006 when it announced the appointment of the UK's former Chancellor of the Exchequer Norman Lamont as chairman of its supervisory board.

It previously flirted with the idea of floating 25% of its shares in a dual listing in London and Moscow before opting for the strategic investor route.

Bank of Cyprus said the deal represents an attractive acquisition multiple of 3.1 times the bank's price to book value, taking into account a $50m capital raising after closing

The remaining 20% stake will remain in the hands of Uniastrum's two primary stakeholders Piskov and Zakaryan with a three-year buyout option.

Piskov and Zakaryan will carry on as chairman and president of the bank.

A research note from Renaissance Capital said: "We view the deal as supportive for Russian banking stock, since it shows an ongoing healthy demand from international banks for assets in the space and that attractive multiples are still being paid."

Merrill to open wealth units in Moscow, Istanbul

Wealth Bulletin

24 June 2008 - By Jason Corcoran

Merrill Lynch wealth management unit is expanding its business by opening new offices in Russia and Turkey and expanding teams in Greece and other regions of emerging Europe.

Jean-Marie Deluermoz, director of emerging European markets, EMEA Wealth Management, at Merrill Lynch, said the group had given him a substantial budget to expand the business over the next five years.

Speaking in Moscow at the launch of the Capgemini Merrill Lynch 2008 Wealth Report, he told Wealth Bulletin: "We have a big recruitment budget for the region. Emerging Europe - Russia, the former Soviet Union states, Turkey and Greece - are attracting strong growth rates for wealth management."

A Moscow office to serve Russian clients offshore is expected to open in the third quarter, as is a new office in Istanbul. Merrill is also recruiting new teams for Greece and other countries, which were not disclosed.

Deluermoz, who set up Credit Suisse's representative office in Moscow in 2003, will take charge of the Russian operation from London.

He said Russian high net worth clients were starting to look beyond cash deposits and real estate investment to more sophisticated products such as hedge funds.

Deluermoz said the bank had decided not to go down the route of offering onshore banking in Moscow like its rivals UBS and Credit Suisse.

"It takes one year to get authorisation from the market regulator and another two years for a retail banking license, which you need to offer wealth management services," he added.