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. Last Updated: 07/27/2016

Russian Mutuals Face Doubters

A barrage of advertising in the Russian media can be expected in the next few weeks as the first domestic mutual funds start touting for business -- amid signs from a skeptical public that it will be an uphill battle.


Two funds, Pioneer-First and Pallada, have had their prospectuses registered in the last month by the Federal Securities Commission, and commission spokesman Yury Kotlyar said a decree on fund advertising should be published next week.


Gor Nahapetian, executive director of Troika Dialog Management Co., which plans to register its first funds later this month, said the commission decree will prohibit advertising of current dividend levels and any suggestion of a guaranteed return for investors.


With minimum investment levels of around $100 or less, the funds will be accessible to ordinary Russians, but tight control over marketing and advertising will be vital for overcoming a legacy of suspicion toward non-state investment vehicles, created by the collapse of numerous pyramid schemes in 1994 and before.


"I invested in a fund back in 1990 which promised a car and a TV by 1993, and I am still waiting," said a woman leaving Sberbank on Tverskaya Ulitsa, who identified herself as Lilia. "I'll never look at a fund again."


Andrei Bazanikov, a professional in his 30s visiting his local bank on Novy Arbat, was less trenchant but equally negative about the chances of mutual funds.


"There is too much risk that things could change and the bonds turn into bits of paper. It would take 10 or 15 years of stability to change that perception," he said.


Fund managers are adopting various strategies in their effort to change that perception more quickly. Konstantin Khodakov, spokesman for AVO-Kapital, which is gearing up to register two funds, said his company would make use of national television.


Tim Frost, general director of the Pioneer-First management company, said Tuesday that TV advertising could be "prohibitively expensive," but the public would be treated to a campaign of "creative PR" for Pioneer-First.


The companies also have differing approaches to distribution of their fund units. AVO-Kapital, which is backed by Promradtekhbank and geared to investment in high-tech industries, plans a mixed strategy.


"We have an agreement with Sberbank to act as a retail outlet, but we will also be using the Promradtekhbank network and we are talking to a couple of other potential partners," Khodakov said.


The managers of Pioneer-First have decided to launch in all 10 Russian cities with more than 1 million inhabitants and are setting up a distribution network to match.


"We will have our own distribution points, but we do not plan to open hundreds of points ourselves," said Frost. "We will be hiring distribution agents, including banks, but only if they are good at moving money and documentation on a timely and credible basis."


Alexander Lerman, general director of Neftegaz-Export mutual fund managers, said his company would rent its own distribution points.