By Jason Corcoran in Moscow
Prosperity Capital Management, the largest Russian portfolio manager, is setting up a new recovery vehicle in a bid to capture the spectacular 41% annualised returns achieved by the original Quest fund launched in 1999.
The Prosperity Capital Quest II special situations fund will target restructurings and consolidation opportunities in Russia’s small and mid-cap sector.
Tomas Olsson, a director at Prosperity, told Emergingmarkets.me the firm will launch a private fund vehicle this year and a public listed vehicle in the first quarter of 2010.
Olsson said: “The large and mid-cap stocks have recovered nicely but second-tier and private companies are still very attractive. We also believe some investors have Russian assets that they might not want to manage themselves, as work-outs etc are labor intensive. We hence expect investors to both invest cash and/or contribute cash.”
The firm said it was attracted by the ultra-low valuations of 8.5 times earnings which hadn’t been seen since 1999. The fund’s managers will acquire assets over 18 months at low prices. Assets will be managed and restructured before Prosperity will look for market or strategic exits over 30 months.
Prosperity, which was one of the few Russian-oriented hedge fund firms not to gate clients, has seen its assets under management bounce back to $3.3bn having fallen to $1.5 during the height of the banking crisis.
The firm, which is led by the Swede Mattias Westman, has raised all of its money from institutions outside of Russia. Last year, it secured a much coveted mandate from the Norway’s sovereign wealth fund in the fourth quarter. Further mandates are believed to have been won from US institutional clients.
The first Prosperity Quest Fund has risen 27-fold since its inception in 1999 and returned annualised 41% to investors without availing of leverage.
Several Russian focussed hedge funds were wiped out last year markets tumbled by 85% in the wake of the war with Georgia, the banking crisis and several investor scandals involving the miner Mechel and the Anglo-Russian joint venture TNK-BP.
Foreign investors, who redeemed billions from emerging markets in the wake of the economic crisis, have shown signs in recent months of putting money back to work in Russia. Stock markets in Moscow have soared by up to 150% from the nadir on the back for a recovery in oil prices, a stronger rouble and macro-economic stability.
Fund tracker EPFR Global last week reported that Russian dedicated funds had pulled in $188m, which was the highest weekly inflow of the year.