No. 2, 2004
AT THE START OF A LONG ROAD
Oil of Russia talks to Igor Sherkunov, Chairman of the Board of Directors of JSC Capital Investment Group
Capital Investment Group is a young company, founded at the end of 2002. This youth is deceptive, however: the company's experts have 7 years' experience behind them of working within LUKOIL-Reserve-Invest. In the coming years, Capital plans are to become the leader of the Russian corporate bonds market and among the private pension managing companies.
Q: What were the reasons for setting up the Capital Investment Group?
A: Looking back at the history of Capital Investment Group, the logic of our development becomes absolutely clear. Diversification of business, as well as legislative requirements prompted structural changes in LUKOIL-Reserve-Invest, which culminated in 2002 in the division of the group into independent investment and depositary companies. The new group, which was then called Reserve-Invest, engaged in asset management and investment banking lines of business, which were concentrated in the management and investment companies of the same names. Depositary business was concentrated in the GARANT Specialized Depositary Company, which was not part of the investment group.
As for the main goals in creating the company, they were, primarily, to structure business, dividing it precisely into asset management and depositary and special depositary services, especially since the activities of a special depositary have to be absolutely independent, not connected with brokerage operations and trust management. We needed to do this in order, first, to participate in pension reform and second, and to enter the open market.
The restructuring that was carried out and the change in the name of the group were called on to underline out independence and the absence of any orientation on the interests of a single client. As experience was accumulated through working with JSC LUKOIL structures, the group was able to start operating on its own and began gaining clients on the open market.
In the spring of 2003, we joined IFD Capital Financial Group, which combined companies from three spheres of business – insurance, pensions and investment, and changed the names of all the companies in the group and, from the beginning of 2004, the investment group became the owner of LUKOIL-Reserve-Invest.
That is how Capital Investment Group appeared and our clients gained the opportunity to receive a full package of financial services, including insurance and nongovernment provision of pensions.
Capital Investment Group was formed in the fall of 2002 as a result of a restructuring of the business of LUKOIL-Reserve-Invest Group. It includes the management and investment companies of the same name. The group's main spheres of operations are: trust management of assets, investment banking and brokerage services. According to the results for 2003, the total equity capital of the companies belonging to the group amounted to nearly 1.7 bln. rubles; profit - some 1.9 bln. rubles. The group's client base consists of over 170 legal entities and more than 770 individuals. The Capital management company, belonging to the group, has been awarded the AAA maximum reliability rating by the National Association of Stock Market Participants (NASMP), as well as the highest reliability rating (A++) by the Expert RA agency. Capital Management Company holds first place in terms of equity capital and fourth place in terms of the assets under its management, which include the assets of 24 pension funds, insurance companies and other legal entities. The Capital investment group belongs to IFD Capital Financial Group, which unites companies in several lines of business - insurance, pension and investment.
Q: Would you, please, tell us a few words about the company's main lines of business?
A: The main lines of business of our group are trust asset management and investment banking services – financial consulting, project financing, bond issue organization and placement. Both markets – trust management and investment banking services – have tremendous potential. The former – thanks to pension reform and the latter – owing to the substantial undervaluing of the majority of Russian companies, which need access to the capital market and, for that purpose, the assistance of financial consultants.
After LUKOIL-Reserve-Invest joined Capital Investment Group, we started providing our clients with brokerage services.
We now offer our customers the full range of services on the stock market.
Q: Although the company was set up only recently, it has already achieved certain results. Tell us, please, what you have managed to achieve on the market.
A: Our main achievement is a developed client base. There is quite serious competition on the Russian financial market in attracting big clients, so the client base we have built up over 18 months is the main testimony to our success. Our clients include pension funds of the biggest banks and corporations (LUKOIL, Vneshekonombank, Vneshtorgbank, Sberbank, Aeroflot and others) and big insurance companies (Rosgosstrakh, Capital Insurance and others).
Our cooperation with LUKOIL deserves special mention. Although it is no longer our founder, the Company is our partner and client all the same. We value greatly the experience we gathered over the many years of cooperation with LUKOIL when we worked within LUKOIL-Reserve-Invest Group.
This does not, however, exhaust the client base, which includes insurance companies, other legal entities and a number of individual investors. We currently provide financial services to 170 legal entities, including 24 pension funds, and about 800 private investors.
Another achievement of significance for us is high positions in ratings and rankings. Thus, the Expert RA rating company has awarded our management company an A++ rating. The highest degree of reliability, and the National Association of Stock Market Participants has awarded our management and brokerage companies an AAA rating – maximum reliability. We hold first place in the ranking of management companies and third place in that of investment companies in terms of equity capital and third place in terms of the size of the assets we manage.
I think that these achievements have become decisive for people in choosing our management company for entrusting the funded part of their pension benefits. We have become one of the leaders of the first stage of pension reform. Within the framework of this reform, about 86,000 people have become our clients. We have managed to attract some 12% of the funds handed over to private companies for management.
Q: How does your company see the development of the investment banking sector in Russia?
A: I believe that this sphere will develop dynamically, and the prospects of the market are evident in virtually all spheres.
The process of consolidation will continue and require services in such spheres as mergers and takeovers. Another process stimulating the given sphere of investment banking is the ringfencing and sale by big companies of non-core assets.
In addition, the market is in obvious need of new issuers. Companies that have not yet entered the market will realize the benefits of borrowing resources by issuing debt securities or placing shares.
Project financing, closely related to investment banking is also in demand, because it makes it possible to apply various financing schemes, depending on the individual specifics of the borrower.
Igor Sherkunov was born in 1963 in Moscow. In 1985, he graduated from the Moscow Finance Institute, specializing in Finances and Credit, in 1993 - the Academy of Foreign Trade, majoring in International Economic Relations. From 1988 to 1991, Sherkunov worked for the National Insurance Department of the USSR. From 1993 to 1996, he was Vice-President of the LUKOIL Insurance Company; from 1996 to 2003 - General Director of JSC LUKOIL-Reserve-Invest. Since the fall of 2002, he has been General Director of JSC Capital Investment Group and since May 2003 - Chairman of its Board of Directors. Since 2000, he has been a member of the Board of Directors of LUKOIL. Igor Sherkunov was the winner of the Manager of the Year - 2001 Moscow and Russian competitions in the Finances and Credit category, and in the Financier of the Year 2000 competition in the Stock Market and Investment category.
Asset management will grow dynamically. Moreover, this development will be not only the result of dictates from above in the form of government pension reform, even if progressive, but also of deliberate and voluntary decisions on the part of individuals and entities alike, as evidenced by the rapid growth of investment fund assets.
Q: How do you assess the level of competition in Russia between investment companies?
A: As I said earlier, there is fairly tough competition on the Russian finance market with respect to attracting big clients. As for all the other clients, it is too early to speak of tough competition. Here we have not yet reached the level of a competitive struggle; at the current stage, the struggle is for the client.
Moreover, this stage might be called "educational." Often we not only have to explain to the client what the product offered is, but also convince him that he needs it.
Q: What place in Capital's activities is occupied by questions of socially responsible business?
A: In my opinion, this topic now requires close attention. Social responsibility in one way or another affects very many aspects of business and has, as its consequences, the normal and full existence of people and organizations in society, and of society as a whole. This is particularly evident against the background of the tremendous attention focused on the development of socially responsible business practices in many foreign countries.
Traditionally, the social responsibility of business is charitable work. I believe it is a spiritual act, and only then is it true charity. Well, we transfer money every year to the LUKOIL Charitable Fund for helping and supporting children's homes; we support the project of Education Center 17 for setting up a broad learning system on the basis of internet-intranet technology, and help in the restoration of monuments of Russian history and culture.
Capital Investment Group is the laureate of the All-Russian Award "Russian National Olympus" in the nomination "Finances and Investments". The 10th Awarding Ceremony took place on March 10, 2004 in the State Cremlin Palace in Moscow. The Award founders are the Government of Russia, the Russian Academy of Sciences, the RF Chamber of Commerce and Trade, the Russian Union of Industrialists
Another form is social support for our employees. We focus very serious attention on this issue, since we are very well aware that human resources are our main asset. We have a team of highly-skilled professionals. Recently we have launched a program to support our employees which includes medical insurance, skill upgrading schemes, catering system improvement, etc.
In addition, I would like to mention one more important aspect of the social responsibility of business – the company's business reputation.
Since we started operating, we have managed to gain for ourselves the reputation of a reliable partner on the market and we attach special significance to maintaining this image, as we see it as our main competitive advantage.
Q: What are the plans and prospects for the development of Capital Investment Group in 2004-2005?
A: We face a lot more tasks. We intend to occupy 10-15% of the funded pension market that is of the segment that will be occupied by management companies.
Another line of business will be more active operations in the sphere of investment banking services. We plan to step up operations in the sphere of organizing the issue and placement of corporate bonds, elaborating bills of exchange programs and merger and takeovers projects. We will work with medium-sized companies and provide financial services in the regions of the Russian Federation.
In addition, we are to make our accounts and reports more transparent and understandable for foreign investors, gradually switch over to the international accounting standards, as well as win the ISO 9001 quality standard for our management company.