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bne April 2018 Eastern Europe I 47
INTERVIEW:
UFG Asset Managers seek mid-cap growth stories in a turbulent market
2010. The second one we raised in 2014 during the Crimea crisis. And we are now in the process of raising a third fund,” says Dominic Reed, UFG’s Private Equity partner, who has been with the firm since 2008. “Ironically, thinking back to 2010 when no one wanted to touch Russia, to date that fund has gen- erated a gross internal rate [IRR] of return north of 40% on its investments. And the 2014 fund closed just as Crimea was annexed shortly followed by the ruble halving in value, but in dollar terms that fund is also currently running upwards of 30% gross IRR.”
The same story is repeated on the public markets, where UFG also runs one of Russia’s best performing public market funds. Its flagship fund was up 50%
in 2016 and 24% in 2017, despite the overall lacklustre +0.3% performance of the benchmark MSCI Russia stock market index in 2017. The overall market was dull but at a corporate level there were many success stories as the best companies saw earnings soar and the process of consolidation in many sectors, catalysed by the crisis, continues.
This is the essence of what UFG and other funds are selling. There is a lot of noise and fury surrounding Russia, but at the end of the day it is a huge country with the largest population in Europe and is in the middle of a transformation from one system to a new one and that creates opportunities if you have the local team and knowledge. Reed has been in Russia since 1997 and UFG has been a leader in the Russian financial sector since 1994.
“It's a very hard message to get across
to people outside the country, as Russia comes with a particular reputation and emotional baggage. But if you can look through all this and see what is going on the ground you can find very interest- ing high growth companies, run by outstanding entrepreneurs, and largely operating outside of the traditional Rus- sian strategic sectors such as oil and gas” says Reed.
UFG’s Private Equity Funds focus on the mid-cap category where really spec- tacular growth can be found, focusing
Ben Aris in Moscow
Russia’s dollar-denominated Rus- sia Trading System (RTS) was one of the best three performing markets in the world in 2016, up 50% y/y, and while last year the market did less well (it was essentially flat) a raft of successful IPOs and SPOs showed that international portfolios’ interest has been piqued by the country’s economic recovery. UFG Asset Management is one of the largest Russia-dedicated multi- strategy fund managers, with institu- tional funds focused on private equity, public markets and real estate.
The private equity business is probably the most interesting and successful. It's about having a nose for fast growing companies and getting in early to help them out with growth capital. UFG’s portfolio has grown by 30% or more in dollar terms every year – even including 2014 when Russia annexed the Crimea and the value of oil prices and the ruble collapsed while most international investors were standing on the sidelines.
“We run two PE funds. One we raised just after the financial crisis in 2009-
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