At a time when several Greek listed portfolio investment funds are doing so badly that their future in the bourse appears extremely shaky, Global New Europe Fund (GNEF), which specializes in the emerging markets of Eastern Europe and the Middle East, is bucking the trend and is slated to be listed on the Athens Stock Exchange (ASE) early next month. Vassilis Karatzas, CEO of Global Investment Services which has undertaken the management of GNEF’s portfolio, explains there are two main reasons why this mode of company was preferred to a mutual fund, and both are related to the peculiarities of the specific emerging markets. The first is the stability which the particular form of company offers to capital under management. When an investor withdraws from a mutual fund, his shares are liquidated and the total capital under management is reduced by the corresponding amount. By contrast, a portfolio investment company has a specific number of shares, and so, for a shareholder to withdraw, his shares must be bought by someone else, leaving the amount of capital under management unaffected. For GNEF, Karatzas adds, this stability is very important as it will shield it from possible excessive anxiety of investors about their exposure to «distant» markets, or indeed, from sudden inflows which may put pressure on it to invest with greater risk. The second reason is the greater flexibility offered by the law, which sets no limits on the amounts of capital under management which may be placed in one or another category of shares. And the timing for the listing? «We now see opportunities and want to tap them,» says Karatzas. The fund will invest in shares, bonds and short-term deposits in countries like Russia and Turkey and others in Central Europe. GNEF will also invest a small part in Greek companies active in the Balkans and Eastern Europe. It targets the absolute return on investment, rather than in relation to some benchmark stock market indices. Conservative profile Karatzas is at pains to stress GNEF’s conservative investment profile. «We retain a great deal of liquidity in order to be able to tap opportunities. We read a lot, study a lot and discuss many ideas for long periods before we decide, avoiding the wear and tear of continuous trading.» He says GNEF’s analysts have long experience of the markets in which it invests and close contacts with local political and business leaders and financial institutions, as well as with the management of the companies it invests in. As regards individual countries, he sees Russia as one of the biggest and most interesting markets, due to its political stability, economic reforms, low capital values, the increasing interest of foreign investors and the high price of oil. Its macroeconomic indicators are among the healthiest in emerging market countries. Russia’s projected entry into the World Trade Organization will be a strong catalyst, Karatzas believes. But he notes GNEF foresaw in good time the recent crisis with oil giant Yukos and made its exit several months ago. Regarding Turkey, he says that fiscal recovery and the rebound in investor confidence are leading to a significant improvement of macroeconomic indicators. Inflation is likely to end at a single-digit figure for 2004, against more than 100 percent a few years ago. A favorable development in the country’s European prospects will be a strong catalyst for further progress, but shutting the door to Europe will present great risks. In Central Europe, GNEF’s interest is focused on Hungary, the Czech Republic and Poland. In Hungary, the large amounts of foreign investment in the last decade are expected to start bearing fruit in coming years. The Czech Republic has been the most developed country of interest to GNEF, while Poland offers the biggest growth potential. Its Achilles’ heel is its 18 percent unemployment rate. For all three countries, the catalyst will be the commencement of the process for their joining the eurozone and the opportunities presented by the so-called «convergence play.» «Russia and Turkey will provide opportunities for a decade, even if this does not start immediately,» says Karatzas, but adds that the currency risk factor always requires particular caution, particularly at times of rising US interest rates.