Art of investments


Interview of Vladimir Potapov, Global Head of Portfolio Management Business at VTB Capital Investment Management to PRIME (Newswire)

Tags: portfolio management

Jul 25, 2012
Tell us about the VTB Capital Investment Management’s strategy in the coming years – what are your development priorities?

Our strategy is to build a diversified business with a presence in all segments of asset management. We want to be akin to a fine tailor, whose mission is to provide quality asset management products suited to a variety of customer classes.
We already have a diversified distribution network that includes more than 700 retail points across Russia. The list not only includes banks of VTB Group – VTB24, Bank of Moscow and TransCreditBank, but other banks – Citibank, OTP Bank, and others. Our goal is to develop a robust sales network in order for our products to be available to everyone.

What is your current level of assets under management?

Last year, our assets under management grew 2.5 times, and in total we now manage over 90 billion rubles. There is roughly 7 billion rubles invested in our retail investment funds, while the rest comes from high net-worth clients and institutional investors. In the near future, I think that the 10-15% growth in our assets under management will continue to originate from investment funds.

What are your plans for this year?

Since the beginning of 2012, we have increased assets under management by 15 billion rubles. Our plan is to exceed the 100 billion ruble mark by the end of 2012 and reach $5 billion by the end of 2013, which is about 160 billion rubles. However, it is possible that we will achieve these figures this year.

What is the main source?

The main source is from large institutional investor projects. We work continuously with clients and see a tremendous interest in our products and services. In addition, more and more pension funds are moving from captive management structure to diversified set of managers, insurance companies are beginning to look at the stock market, and the closed-end fund market is actively growing. All this helps us to create new asset management products for sophisticated clients.

What new products are you working on presently?

We have many different ideas, ranging from special products for large private investors to funds that invest in the commodity markets or select stock groups. Our strategy is slightly more conservative than the overall [asset management] market, so we offer certain products with a full or partial capital protection.
In the near future we plan to launch a global share fund that is focused on companies that have historically paid high dividends. This will be an open-end fund designed for a wide range of investors - including retail investors and large private capital. Therefore, the minimum investment size is not large - under 50 thousand rubles. The fund has already been registered and the prospectus will enter into force in a month.

Which companies will the fund invest in?

It will invest in liquid shares of large public companies from around the world that have long histories of high dividend payouts. In terms of specific industries, we look at sectors of the economy that are less prone to cycles. For example, we try to avoid investments in the metals & mining sector and prefer telecom, energy and financial sectors.

Could you name at least 2-3 stocks in which the fund intends to invest?

From the Russian universe; Surgutneftegaz (preferred shares), Tatneft (preferred shares), and MTS.

Do you plan to launch any other new funds before the end of the year?

We have a short list of about 5 different investment ideas. In the medium term, we plan to launch a global macro fund, a strategy which allows the use of a variety of opportunities around the world to help clients achieve their financial goals. If, for example, we believe that at the moment need to be in commodities, we would buy commodities, if we believe in debt products, we would buy debt products, if we want to short a market, we would short a market. To create such a fund requires us to develop a certain infrastructure, therefore, preparation takes a little longer.

How many mutual funds do you currently manage?

Our lineup of retail investment funds consists of 31 funds, 29 of which are open-end and two interval funds. We highlight our key flagship funds and advise them to our clients right from the get-go. Meanwhile, we optimize our investment fund selection to provide customers with new and interesting investment products that help them form a well-diversified portfolio.

How was the merge of Bank of Moscow AM with VTB Capital AM?

The investment teams are fully integrated. The best portfolio managers from Bank of Moscow AM were integrated with VTB Capital Investment Management. The investment funds of Bank of Moscow AM are sold through Bank of Moscow’s network and other distributors, while the investment funds VTB Capital Asset Management are sold through VTB24’s network and other distribution channels.

Do you plan to consolidate all assets under the brand-name VTB Capital Asset Management?

Not yet. First of all, there is brand loyalty. If customers would like to buy products from the Bank of Moscow AM, then we do not want to force them to purchase VTB Capital Asset Management products. That would not be acceptable from our point of view.
Plus there are legal restrictions on merging funds. When the law changes and it will be possible to combine investment funds without inconvenience to shareholders and agents, we will. However, there is no precedence right now.
In addition, we actively promote a white-label system, which is commonly practiced throughout the world. A white-label system is a system where a product (i.e. a investment fund) is sold under the brand name of one company and managed by another. In particular, we are now preparing such a white-label project for two banks, which are not part of VTB Group.

Which banks are you referring to?

I do not want to disclose their names, but they are rather large and well-known banks. They want to see investment products - investment funds - on their shelves, but they are not willing to invest large sums in the development of an asset management business, since it is a fairly expensive business. Therefore, they will sell investment funds under their own brand, but active fund management will be performed by VTB Capital Investment Management’s companies.

When can these projects be expected?

By the end of this year.

Presently, how do you assess the market of collective investments? When will it recover from the crisis? When will people finally begin to invest?

I think the market for mutual funds in the next few years will lag behind other of discretionary investment segments, in particular, the retirement savings market, which is currently the fastest growing segment in Russia. Pension funds, managed by private pension funds and private asset management companies, more than quadrupled compared to the investment fund market, whereas, 3-4 years ago the situation was quite different.
For private investors to invest in investment funds there should be greater clarity and understanding of investing, as well as lower deposit rates in banks. In addition, we await changes in legislation that would give tax credits for individuals who own investment fund shares.
The market could get a "second wind" with the introduction of institutional investor money and the development of products such as life insurance tied to investment funds. In Brazil, for example, pension funds actively invest in investment funds, resulting in a investment fund market many times greater than in Russia. Here, investment funds are off limits for pension money.

How do you assess the market dynamics of the accumulative portion of the pension system?

The accumulative portion is actively growing and, according to our estimates for 2020, the whole system can easily reach 13 trillion rubles. Of course it would be a good replenishment for the Russian stock market. We would finally have a layer of institutional money that can support the market in the long run.

What legislative changes, in your opinion, are needed to attract institutional money into the stock market?

For the private pension funds, the key would be to expand the investment declaration, allowing pension money to be invested in longer-term projects and instruments, as well as lifting the ban on accruing losses on their client accounts at the end of the one year terms.
Throughout the world, if a market crisis causes an outflow of foreign speculative capital, there is an internal long-term investor who knows the potential of the companies and is buying up their shares. Our situation is reversed. When the market falls, pension funds sell their stocks, because they would have problems at the end of the year due to a ban on accruing losses on client accounts. As a result, "long" money, which should fuel the economy and encourage its development, in fact lies in quasi-bank deposits or short-term bonds.

By the way, regarding accruing losses, pension funds are now required to show at least a zero percent return for the year, while asset management companies may experience losses during bad markets. Due to this, do you foresee an outflow of funds from private pension funds? Where, in your opinion is it most profitable for future retirees to keep their savings?

I believe that everyone should focus on their roles. Private pension funds should work with citizens and provide them with quality services and products, while asset management companies should manage the assets of the pension funds.
The use of private pension funds to handle the accumulative portion of the pension system works absolutely correct and we fully support it. We work with more than 15 pension funds, but see our role as portfolio managers, rather than being involved in building relationships with retail clients.
Generally, in our opinion, the industry must consolidate. There are not enough resources in the Russian market to justify the existence of such a high number of asset management companies.
VTB Capital Investment Management, for example, has the ability to keep solid staff, including risk management, control specialists, portfolio managers and analysts. This is a serious budget, which only a major player can afford.
Asset management companies should develop investment strategies, invest intelligently, manage risks, provide full investment support and risk management to its customers, whether they are pension funds, insurance companies, endowment funds or private investors.
Private pension funds must deal with communicating with the client and creating high-quality services. Accordingly, I think it is wrong if pension funds invest by themselves.

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