Liam Halligan of Prosperity Capital Management continues to be a one-man cheering section for Russia – and with good reason. As chief economist of Prosperity Capital Management, Liam Halligan could be accused of being a trifle over-enthusiastic about investment opportunities in Russia. The performance of the funds run by the company, however, supports his stance. “We started in Russia in 1996. We are now the largest asset manager in Russia and all the money we invest is foreign money. That says a lot about Russia despite the stereotypes,” declares Halligan. “I have 14 years of experience in Russia. The environment for investors is rapidly improving. There are many extremely lucrative investments to make. We are at a point in history where the gap between so-called conventional wisdom and reality is vast.” The performance of the Russian stock market last year, notes Halligan, was a whopping 129% with stocks trading at multiples of seven to eight. For Halligan, Russia presents an enormous untapped market. He gives figures to back up this claim: GDP per capita in real terms grew 12-fold since 1998. The average Russian is three times wealthier than his Chinese counterpart and nine times wealthier than the equivalent Indian. Both consumption and investment are expanding. The reliance on the energy sector in that growth is beginning to fall. Oil and gas now account for only 25% of GDP growth and that share is falling. GDP is a solid $1.34 trillion with GDP per capita of $9,430. Sovereign debt is a low 5% of GDP with reserves standing at $441 billion. Halligan points out that Russia is stable both economically and politically. The double act of President Dimtry Medvedev and Prime Minister Vladimir Putin offers continuity, he believes. The ongoing privatisation programme is now taking in power production and the massive railway system. Income tax at 13% is low and corporation tax is set at 24%. These conditions have helped Prosperity grow. The company now has assets under management (AUM) totalling $3.5 billion. Its sole focus is on Russia and the former Soviet republics. The investment team is all Russian. The client base is made up of some of the West’s leading private banks, institutions, sovereign wealth funds and family offices. Its flagship Russian Prosperity Fund, launched in 1996, now has $858 million AUM with weekly liquidity. The long-only strategy follows a bottom-up, buy-and-hold philosophy with no leverage. As an active investor the fund is represented on the board of companies representing around 30% of the fund’s AUM. The average return of the fund since launch is 23%. The Prosperity Quest Fund (special situations), launched in 1999, has $254 million AUM and focuses on event-driven, restructuring opportunities. It offers monthly liquidity and has an average annual return of 44% since launch. Prosperity Quest II Fund is launching this year and will focus on distressed and restructuring opportunities in the Russian market. “The core investment team has been in place since the beginning,” says Halligan. The chief investment officer joined at age 19 and is now 32. “He is the best known and most successful fund manager in Russia,” claims Halligan. “He chairs the main corporate governance lobby group in Russia for minority shareholders. We founded this group,” notes Halligan. A lot of the money invested by Prosperity is from the US, despite the scepticism usually associated with American investment in Russia, says Halligan. He believes the biggest change to the market came in 2008 when the “highly leveraged wide boy Western hedge fund speculators ran away”. This money he says has been replaced by Asian and Middle Eastern money. Halligan is proud of the fact Prosperity has “never used leverage, never gated clients over the 15 years of investing in one of the most volatile markets in world – and we offer weekly liquidity.” The investment approach, explains Halligan is an “long only buy and hold. But we don’t buy and hold indefinitely. If we think we made a mistake, we get out of the position.” Prosperity relies on its own research. “There are some very interesting companies that have never been the subject of a broker’s note. We have a top-class team on the ground and incentivised professionals. We are way ahead of the domestic competition let alone outsiders,” says a confident Halligan. He admits that Russia is complicated enough without using any leverage and believes the success of the company comes in part from its activist investor approach. Prosperity as the leading minority activist shareholder in Russia, sits on dozens of boards. The company is often given the power of attorney by institutional investors and international as well as Russian investors in order to put pressure on company boards. “We are constantly in court and standing up for shareholders’ rights. And we have a track record of winning.”...
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