Ukraine Fund aims to attract large investors (03/02/97)

Ukraine Fund aims to attract large investors

by Roman Woronowycz
Kyiv Press Bureau

KYIV - With Ukraine still battling to right its economic ship, a few hearty and optimistic investors seem to think the economic upswing is about to begin and have come on board.

The Caspian Group announced on February 17 that it is ready to establish an investment fund for Ukraine in conjunction with the Kyivska Rus' Financial Investment Group.

The Ukraine Fund, which will be aimed at large institutional investors, hopes to invest $25 million to $50 million in Ukraine's economy, said James Churm, managing director of The Caspian Group. "Our goal is to help our investors efficiently and effectively invest in emerging markets. We also want to help build local business and help them develop by Western standards."

The Caspian Group was established in late 1995 and incorporated in the Cayman Islands. It has established investment funds for Latin American and Asian countries, and has major offices in New York, London and Hong Kong.

Willard Thalwitz, chairman of the board of directors of Caspian, said now is the right time to invest in Ukraine. "It would have been very difficult to establish the find in 1993. We had to develop some trust in the management of the economy as a whole," he explained. "Financial markets do not work well with 2,000 percent inflation. A stable hryvnia was a major condition for the entry of financial institutions into Ukraine."

The Kyivska Rus' Financial Investment Group will work alongside the Caspian Group in building the investment portfolio. Volodymyr Herasymchuk, chairman of the board of directors of Kyivska Rus', said Caspian's investment shows the degree of trust that is building in the Western world towards Ukraine's economic situation. He explained that the fund is different from investments by international organizations backed by governments, such as the World Bank or the International Monetary Fund. "These are investments in stocks and bonds. They are risky in any country, but more so in Ukraine," he said.

Mr. Churm of Caspian said the Ukraine Fund hopes to develop a portfolio that emphasizes oil and gas, metallurgy, chemical and agricultural industry investments for its investors, which include insurance companies, banks and investment managers.

"We are working according to the principle of spreading investment to avoid high risk," he explained. To that end the Ukraine Fund does not expect to invest more than 3 to 10 percent in any one company.

However, with the volatility of the Ukrainian economy, and the shaky status of businesses in Ukraine, the fund's overriding concern is to find quality companies.

Part of the problem of fund management in an economy such as Ukraine's is that it is difficult to determine the value of corporations, basically because the stock market in Ukraine is virtually non-existent. "Until more stocks start trading on the stock exchange it is difficult to know how much corporate stocks are worth," explained Mr. Churm. "It is our job to determine the value of stocks by the quality of the information the companies give us."

Caspian, which will have the final say over Kyivska Rus' regarding the companies chosen for the Ukraine Fund portfolio, will select firms for its investors that have shown strong performance in their industry. Just as important is that they are willing to allow Western auditing companies to review their books and are open in sharing information on the company and its investors. A company that already has Western investors will have an advantage, said Mr. Churm.

Caspian will send its professional fund managers to work with Kyivska Rus' in examining investment opportunities by meeting with corporate managers chosen by Kyivska Rus'.

There are several hurdles to jump before the fund is off and running, not the least of which is to find a custodian bank for the investments. "We are very close to an agreement," explained Mr. Churm. "We will not introduce the fund until a custodian has been identified and signed up," which he hopes will occur by the end of March.

There also is the matter of investors. Prospectuses have been sent to clients, but Caspian does not expect a serious surge of investors for several months, which is why he gave the wide-ranging figure of $25 million to $50 million as the size of the fund. Yaroslav Aleksandrov of Kyivska Rus' said it is hoped the fund will reach $150 million in investments, but that the Ukraine Fund had decided to use the more conservative figures so they could not be accused of failing to reach projections.

The final problem is simply one of doing business in Ukraine. A recent issue of The Economist anointed Ukraine as the worst market in Europe for investment. The London-based weekly magazine listed everything from insurmountable bureaucratic hurdles to the need to grease palms at every turn as hindrances that make Ukraine one of the most difficult European countries in which to establish a business.

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