. Last Updated: 07/27/2016

Pioneer Sets Fund Terms, Predicts Summer Launch

Pioneer-First Voucher set a minimum subscription price in its new unit investment fund at 500,000 rubles ($100) per investor, and company officials said Tuesday the fund could be launched by the end of the summer.


Part of a broad government effort to lure investors into the markets, unit investment funds have emerged as a way to wring some of an estimated $20 billion to $30 billion in savings from Russians mistrustful of Russia's unstable banking system.


The modest $100 entry minimum reflects Pioneer's hopes to lure middle-class Russians seeking safer places to invest. Moreover, it sets up Pioneer's model as a potential benchmark for a slew of other funds expected to pursue a vast, but largely untapped, retail market.


Pioneer plans to market its fund through large banks with the computer networks and staff necessary to process thousands of daily transactions and account statements. Pioneer-First chief executive Timothy Frost said distributors could include Stolichny, Inkombank and Credit Suisse.


Pioneer-First Voucher's management company, KUYIF, is the first of three companies licensed so far to divulge fund entry and redemption fees. The Boston-based mutual fund operator Pioneer Group holds a 51 percent interest in Pioneer-First Voucher.


AVO-Kapital, the fund management company for the Promradtekhbank-Joint Institute for Nuclear Research investment fund, and Monomakh, which will manage the Edinistvo-94 fund, also won licenses from the Federal Securities Commission last spring. But they have yet to reveal detailed marketing plans.


Frost said Pioneer's fund is ready for launch "just as soon as the issue of a custodian is worked out." Custodians, or depositors, are separate entities that keep track of securities and cash for management companies running funds and ensure that fund managers work on behalf of investors.


Meanwhile, the securities commission has yet to approve rules on sales agents and advertising for the funds, part of the raft of regulations drafted to protect investors burned by MMM and other pyramid investment scams.


Misleading claims about 1,000 percent returns and no-risk investments won't be allowed under new rules, and advertising will have to include a prospectus and standard disclaimers.


Horror stories like MMM, which bilked Russian investors of millions of rubles, also challenge Pioneer and future competitors to persuade investors they can get their money out. Pioneer is required to buy back any shares, the value of which rise or fall depending on the performance of the fund's investment portfolio.


Pioneer is proposing a minimum redemption fee of 50,000 rubles for investors who want to withdraw.


Emergence of other unit investment funds, or UIFs, will help create more liquidity for these instruments. Capital Regents, for one, hopes to bring its own unit investment trust to market this fall, and at least a dozen others have applied for licenses.


"UIFs in Russia have the ability to officially invest in Russian debt securities, just like banks do. But they can pass on a greater percentage of return to the investors," said Dan Boltini, an investment officer for International Finance Corp., the investment arm of the World Bank.


"The key to the success of unit investment funds will be back-office capabilities -- the systems and the infrastructure," said Boltini. "Just imagine that you want to invest in an UIF. Where do you go? Can you walk in with cash? In the U.S., you walk into an office and write a check or transfer money from one account to another, or call and get the account value every day. Imagine the sophistication of systems and infrastructure involved in operating an organization like Fidelity and replicating that in Moscow."