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Mutual Funds in Russia:

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Mutual Funds in Russia: On the Road to Success. Overcoming of 1998 financial crisis ... Mutual funds do not pay tax on dividends received ... – PowerPoint PPT presentation

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Title: Mutual Funds in Russia:


1
Mutual Funds in Russia Developments and
Prospects
April 23, 2003
PIOGLOBAL Asset Management
2
Mutual Funds in Russia Developments and
Prospects
PIOGLOBALOur Success in the Russian Market
  • Established Financial Services and Real Estate
    operations
  • Disciplined institutional strategies that
    capitalize on internal skills, experience, and
    research capabilities
  • More than 100 million in assets under management
    in PIOGLOBAL funds
  • Controls 20 of the Russian open-end unit fund
    industry
  • Proven Russian performance and the best customer
    service in the market
  • Extensive nationwide network of contacts
  • Over 60 highly qualified Russian and Western
    employees
  • Named 1 Asset Management Company in 2002 by
    rating agency RosBusinessConsulting, Business
    Open and Euromoney

PIOGLOBAL Asset Management
3
Mutual Funds in Russia Developments and Prospects
Russian economy today Strengths and concerns
Positive developments
Possible concerns
  • Political stability, previously undreamed of
  • Improving fundamentals (stable exchange rate,
    reduced inflation, budget surplus, trade surplus)
  • Unprecedented pace of structural reforms
  • Growing domestic and foreign investment, capital
    flight curtailed
  • Growth in real earnings and increased consumer
    confidence
  • Foreign debt repaid ahead of schedule
  • Global slowdown, significantly reduced demand for
    energy and metals, expectations of declining oil
    and metals prices
  • GDP growth slowdown
  • Weak banking system
  • Although maturing, the Russian political system
    remains very dependent on personalities

PIOGLOBAL Asset Management
4
Mutual Funds in Russia Developments and Prospects
Russian Reforms in Progress
Comprehensive tax reform
  • Flat personal income tax at 13
  • Simplified corporate profit tax at 24
  • Jump in profit tax receipts, reflecting reform in
    force

Restructuring natural monopolies
  • Gas and electricity markets to be liberalized
  • Establishment of Electricity Trading System
    Administrator
  • Tariff hikes up to 35, and repeated policy
    commitment to at least the same level of real
    increases in 2003 and beyond

Pension reform
  • Pension reform introduced in 2002
  • Law on Investing Pension Reserves effective from
    2003
  • Establishment of individual pension accounts

PIOGLOBAL Asset Management
5
Mutual Funds in Russia Developments and Prospects
Russian Reforms in Progress
Financial changes
  • Stable growth in currency reserves
  • Currency regulation will be liberalized
  • Opportunity for the Russian citizens to invest in
    foreign assets and open accounts with foreign
    banks

WTO and deregulation
  • Faster WTO acceptance is the main benefit to be
    reaped
  • Small business licenses and regulations
    simplified
  • Improved rate of small business creation
  • In June 2002 Russia was awarded the status of
    market economy by the US
  • In November 2002 Russia was awarded the status of
    developed economy by the EU

Corporate governance
  • In 2003 corporate governance is expected to
    continue to improve
  • We expect to see further developments in areas
    such as disclosure and appointment of independent
    directors

PIOGLOBAL Asset Management
6
Mutual Funds in Russia Developments and Prospects
Russia Stands TallSelected GEM Indicators
PIOGLOBAL Asset Management
7
Mutual Funds in Russia Developments and Prospects
RTS Market in 2001-2002 and 1Q2003
PIOGLOBAL Asset Management
8
Mutual Funds in Russia Developments and Prospects
Market for Great Business Opportunity
  • Russia was the worlds second best performing
    market in 2001-02
  • Sovereign discounts are set to decline further
  • Stocks are still inexpensive compared to GEM
  • Growth is yet to be priced into the markets
  • Further re-rating is inevitable
  • Corporate governance is improving
  • Smart managers and stakeholders will need and
    want to open up to capital markets

PIOGLOBAL Asset Management
9
Mutual Funds in Russia Developments and Prospects
Stocks are still cheap compared to GEMsRussian
valuations relative to global emerging markets
PIOGLOBAL Asset Management
10
Mutual Funds in Russia Developments and Prospects
Growth is yet to be priced into the
marketsRussian growth relative to GEMs
PIOGLOBAL Asset Management
11
Mutual Funds in Russia Developments and Prospects
Mutual Funds in 2002International Comparisons
Source Investment Company Institute.
International Mutual Funds Survey
PIOGLOBAL Asset Management
12
Mutual Funds in Russia Developments and Prospects
Mutual Funds in Russia On the Road to Success
  • Overcoming of 1998 financial crisis
  • Robust sales growth
  • Improved attractiveness of mutual funds
  • New law on investment funds and regulations
  • Association of fund managers is playing a very
    active role

PIOGLOBAL Asset Management
13
Mutual Funds in Russia Developments and Prospects
Mutual Funds in Russia Favorable Tax Regime
  • Mutual funds do not pay profit tax
  • Mutual funds do not pay tax on dividends
    received
  • Unit holders do not pay taxes on unrealized
    capital gains
  • Income tax of individual unit holders is
    collected and paid by the Management Company
  • Legal entities are allowed to reduce taxable
    income by the cost of the units purchased

PIOGLOBAL Asset Management
14
Mutual Funds in Russia Developments and Prospects
Mutual Funds in 2002-1Q03
  • Fragmented industry out of 92 management
    companies in Russia 42 were registered in 2002
    and 10 in 1Q2003
  • Low barriers to entry 19 unit funds were
    registered in 2002 (3 closed, 4 interval, 12
    open) compared to 14 in 2001 and 11 in 2000
  • Assets are highly concentrated top 5 companies
    occupy 91.5 of assets, compared to even higher
    concentration of 94.29 in 2001
  • Around 11,100 investors in all funds by the end
    of 2002 compared to around 6,300 at the end of
    2001
  • Individual investors are still trading funds

Source National League of Fund Managers, 2003
update
PIOGLOBAL Asset Management
15
Mutual Funds in Russia Developments and Prospects
Industry Assets Under Management
Source National League of Fund Managers, April
17, 2003
PIOGLOBAL Asset Management
16
Mutual Funds in Russia Developments and Prospects
Open-End Funds AUMMajor Competitors in 80
million Universe
Source National League of Fund Managers, April
17, 2003
PIOGLOBAL Asset Management
17
Mutual Funds in Russia Developments and Prospects
Independent Qualitative Rating of Management
Companies
Source National League of Money Managers, Your
Money magazine, April 2003
PIOGLOBAL Asset Management
18
Mutual Funds in Russia Developments and Prospects
Significant Increase in the Average Purchase
Size(in USD)
1999 2000 2001 2002 1Q2003
INSTITUTIONAL CLIENTS 7,926 6,855 15,131 17,574 43,069
INDIVIDUALS 881 1,157 1,015 1,986 2,292
Source PIOGLOBAL Company Data
PIOGLOBAL Asset Management
19
Mutual Funds in Russia Developments and Prospects
Average Purchase as Function of Investor Age (in
RUR)
100 000
90 000
80 000
70 000
60 000
50 000
40 000
30 000
20 000
10 000
0
? 18, lt30
Under 18
In their 30s
In their 40s
In their 50s
Over 60
All
Source PIOGLOBAL primary research.
PIOGLOBAL Asset Management
20
Mutual Funds in Russia Developments and Prospects
Most Reasonable Guarantee of Success According
to Russian Investor
Hard to answer 6
Foreign Roots 5
Other 12
Past Performance 30
High reputation and good brand name 47
Source PIOGLOBAL primary research. 4052
respondents.
PIOGLOBAL Asset Management
21
Mutual Funds in Russia Developments and Prospects
PIOGLOBAL Index FundA unique product in the
Russian Market
  • The first index-based interval mutual fund in
    Russia. Registered by FCSM on January 22, 2003
  • A successful combination of two widely-recognized
    brands of PIOGLOBAL and MICEX
  • A unique opportunity for investors to enter and
    exit the market at a low cost
  • High transparency and diversification
  • Passive management, free of individual bias
  • Low costs management fee 0.5, overall costs
    below 1
  • Expected dividend yield in the range of 2.0-3.5

PIOGLOBAL Asset Management
22
Mutual Funds in Russia Developments and Prospects
MICEX IndexA widely recognized market tracker
  • Index - developed and administered by the Moscow
    Interbank Currency Exchange (MICEX).
  • Comprised of 18 stocks of the 12 most liquid
    companies, which represent 90 of the total
    market
  • Market Cap weighted
  • Adjusted for Free Float and Liquidity - two
    parameters crucial for the Russian market,
    dominated by closely-held and partly
    government-owned companies
  • Calculated on-line and overseen by the MICEX
    Index Committee which includes members of
    investment community and PIOGLOBAL
    representatives. Restated quarterly
  • The Funds portfolio will track the Index and
    will not deviate from it by more than 3

PIOGLOBAL Asset Management
23
Mutual Funds in Russia Developments and Prospects
PIOGLOBAL Index FundSources of liquidity
  • The Fund will be open for purchases and
    redemptions 4 times a year
  • The Funds units will trade as individual stocks
    in the secondary market (MICEX and OTC)
  • Available to a wide range of investors
  • Accessible in the regions
  • Lower service fees charged by National Depository
    Center (in comparison to stocks)
  • Daily liquidity maintained by market makers
  • Units will not sell short or be bought on margin

PIOGLOBAL Asset Management
24
Mutual Funds in Russia Developments and Prospects
Mutual Funds Further Developments
  • Pension reform
  • Education of general public
  • Increasing horizon for individual and
    institutional investors
  • Growing distribution network

PIOGLOBAL Asset Management
25
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PIOGLOBAL Asset Management
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