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. Last Updated: 07/27/2016

Group Eyes $300 Million Russia Fund

The Templeton group, which runs one of the world's top emerging-markets funds, is considering launching a $300-$400 million fund to invest in Russia.


Mark Mobius, who runs the $280 million China World Fund, a recently launched $120 million Vietnam Fund and $5 billion in emerging markets cash for the Franklin/Templeton group, said in an interview the new closed-end Russia fund would be listed on the New York Stock Exchange.


"We are looking at around $300-$400 million for Russia," Mobius said. "This is a major emerging market just like China, Brazil, India and South Africa. Russia is at the same level."


Templeton was also planning to set up a representative office in Moscow soon, Mobius said.


The fund would initially be looking at 15 blue-chip Russian stocks traded and valued daily.


"We have identified 15 blue-chip Russian stocks. But we're not happy with that. Of course, eventually the number of shares should be between 100 and 150. That's what I'd ideally like," Mobius said Monday.


It was too early to give a timetable for the fund's launch, which depended on sorting out custodian facilities in Russia, Mobius said.


No foreign bank has yet ventured into custodian businesses in Russia. But Mobius said that, ideally, the fund would like to work with Chase Manhattan Bank, which is planning to develop such facilities in Russia in the near future.


If the launch goes ahead, this would be the first U.S.-listed fund investing primarily in Russia. Mobius said the closed-end fund, with a limited number of shares, would also aim to be listed on New York's Big Board, where single-country closed-end funds are known to trade with wild price swings.


He expected lots of investor interest once the fund is launched. "Russia is getting more and more popular," he said. "Interest should be pretty good."


Once it is launched, the fund could be fully invested in a period of between six to 12 months, Mobius said. "We are not going to jump in," he said. "There are huge risks in this market and we have to be very careful."


Russia does not have an organized securities market. There are dozens of exchanges that trade stocks, but there is little transparency or liquidity. Most trade occurs off the exchanges.


Mobius said market liquidity was improving, but that "no one has a clue as to the evaluation of companies, or minority shareholders' rights. These are the biggest problems in Russia."


The biggest challenge, however, was determining the real price of a share, Mobius said. "No one has a clue on the real turnover," he said.


At least 65 percent of the fund would be invested in companies which, though possibly foreign, are able to benefit from operations in Russia, Mobius said.


"These companies must get at least 50 percent of their profits from operations in Russia," he said.


Mobius said Russia was likely to beat China into becoming the next hot area for people to invest.


"Russia could easily surpass China because the number of companies privatized here is much bigger than in China," he said. "Besides, you can do things more easily in Russia."


"When we first came here on our private plane, we had no visas. The Russians gave us visas in an hour at the airport. You can't do that in China. The Russians also give us permission to fly to where we want. You can never do that in China."