KINTO in Mass Media: Speeches&Comments

EuroInvest Magazine/ Autumn - 2003
Kinto, Asset Management

THE COMPANY

JSC KINTO, a more than 40% employee-owned Kiev-based securities firm, was founded in 1992. This makes it a local investment house with probably the longest record of servicing international customers in the country accommodating their needs in professional securities trading/brokerage and asset management services, M&A and privatisation advisory. The company’s top and mid-level professionals have about 100 years’ experience in the field, including asset management.

KINTO has been involved in asset management since 1994, when it set up the first in the family of domestic voucher funds to participate in the mass privatisation programme. A year later, it was appointed as investment advisor for the first international portfolio investments fund in Ukraine, The New Ukraine Partners, co-managed by Wasserstein Perella Emerging Markets (USA) and European Privatisation and Investment Corporation (EPIC) (Austria). This was followed by a number of other funds and managed accounts that KINTO served, often together with its partner and 40% shareholder, EPIC, an award-winning full service investment house and a prominent financial advisor for Central and Eastern Europe. In 2003, following regulatory changes, JSC KINTO obtained a special asset management licence and passed its trading/brokerage functions over to its majority-owned subsidiary, KINTO, Ltd.

Both local and international communities have recognized KINTO as a leading Ukrainian player. The company and its professionals have been granted many national awards, including best securities house in Ukraine, most influential personality in the market, securities market leader of the year, financier of the year, person of the year in the stock market, most professional operator and outstanding person in the securities market. Even back in 1996, Dr. Mark Faber, an internationally known and widely-quoted Hong Kong-based consultant, in his publication “The Gloom, Boom and Doom Report”, wrote: “For larger financial institutions, I recommend letting Kinto manage the funds they wish to allocate to Ukraine… Kinto’s experience and knowledge of local conditions are extensive and should be helpful to foreign investors.” This knowledge is based on mature, tested talent – almost all key professionals have been with the company since its inception. Moreover, the company enjoys considerable professional foreign ownership.

The company’s key values are traditional: integrity, customer satisfaction and utter dedication to finding and adding value. Adherence to those traditional values has always gone hand in hand with innovation and pioneering.

THE MARKET POTENTIAL

Currently, Ukrainian companies are out of favour with foreign portfolio investors. Thus, opportunities exist to acquire assets at prices well below their historic maximums and at large discounts on their fair value.

But why do we believe this value is likely to be realised in the foreseeable future?

Economic growth has been sustained for several years in a row; there’s a relatively stable export-oriented economy, currency, high gold and currency reserves; a growing internal demand and savings; a serious reformatory legislative package, including Commercial, Tax and Civil Codes; a growing inner realization by major local oligarchs of inherent direct and indirect economic benefits of employing good corporate governance practices; recently improved country ratings by major rating agencies; expected new co-operation programme with the IMF; the country’s advances towards WTO and EU accession; very successful Eurobond placement in June; the introduction and implementation of new legislative measures aiming to exclude Ukraine from the FATF list of non-cooperating countries; expected growing liquidity following pension funds reform - combined with possible resumed foreign liquidity, all this money could well find its way into the stock market.

We’re not saying “hurry or you’ll miss a bull run”. There are a number of factors that have yet to be resolved, including: pre-election political uncertainties, slow structural reforms, administrative barriers to investment, major corporations yet to prove they are managed in a responsible way and currently miniscule market capitalization.

But are emerging market portfolio investors ever absolutely confident of complete success when they weigh up all the evidence?

Moreover, although a very small country allocation alteration by international money managers can have a significant effect on total market capitalization, which can be risky, and disproportionately so, it can also be rewarding, especially for first-comers.

SOME BENEFITS OF INVESTING WITH A FUND

With the introduction of a new (2001) law on collective investment institutions, economically, technically and safety-wise one of the best ways for portfolio investors to enter Ukraine is by setting up a local fund or buying into existing local funds.

Shareholders in the funds are now very adequately protected by various checks and balances. The fund asset managers are licensed and strictly regulated and monitored. Tax-wise, the funds are not subject to company profit tax thus providing substantial and straightforward tax incentives for portfolio investment through the funds vis-а-vis entering the market directly. A fund can be customized to accommodate the specific strategy preferences of a single large portfolio investor. The fund’s non-resident investors are also spared some cumbersome administrative procedures.

THE FUND

Kinto, Asset Management manages the first public “new” closed-end Synergy Fund aiming to capitalize on the current market inefficiencies, growth opportunities, and the stimulating tax treatment. It is a closed-end value fund with no less than 70% of the assets to be represented by Ukrainian stocks. The fund is set up as an open joint stock company (a corporate fund) and has the term of three years unless decided otherwise by the shareholders. The management company believes this mid-term horizon set by the investment declaration is adequate in terms of the possibility for investee companies to realize at least part of their appreciation potential given current wide discounts between their fair value and market prices.

Since July 2003, the fund’s shares are listed at the country’s largest trading facility, the PFTS (ticker – IFSNR). Since the inception in late March 2003, its NAV had increased by more than 15% by July 21st. On that same day, the fund’s bid price was at a 9.52% discount to its NAV.