e-fundresearch: Do you orient yourself toward a benchmark? If so, which?
Håkansson: No, we do not believe in traditional benchmarks when it comes to Eastern Europe. They usually do not reflect the underlying growth in the economies. We believe instead in investing outside the benchmarks, both country wise and company wise, with a long term perspective and with diversification.
e-fundresearch: Do you currently manage other funds or products?
Håkansson: I am heading East Capital’s portfolio management team, and jointly we are responsible for all our public equity and alternative investment funds, today 13 funds, as well as segregated mandates.
Our funds mirror investments in our region spanning 29 countries and 400 million people; we call it East Capital Universe.
e-fundresearch: How much money do you currently manage in total?
Håkansson: East Capital group has EUR 1.8bn under management as per 31 Dec 2008, of which ca 60% are in public equity.
e-fundresearch: To performance: what results have you achieved since the beginning of the year and in the last five calendar years -- 2003, 2004, 2005, 2006 and 2007? In absolute terms, as well as compared with the relevant benchmark.
Håkansson:
This year has started very well with our broad Eastern European fund outperforming the benchmark index with more than 5%. We really think that this type of market as we have right now is ideal for stock pickers. During the last Russian crisis we outperformed handsomely indexes and will do our best to repeat that this time again.
e-fundresearch: How satisfied are you with your performance in the last few years and so far this year?
Håkansson: Very satisfied as many of our funds have been top performing for many years and we were awarded a number of awards, such as twice the award for the best Eastern European fund in Europe. But over the recent half year or so we have all suffered from the tough market conditions, with falling stock markets, very high volatility and increasing worry about the global credit crisis’ implications on the real economy.
e-fundresearch: Which of these results would you describe as excellent, average or disappointing?
Håkansson: Our investment strategy to identify opportunities in countries such as Russia, the Balkans, Ukraine and Central Asia has been key to our performance in many of our funds. We have also been successful in finding the right exposure to investment themes such as the consumer boom or EU convergence. We think that we are best judged in the longer term and I would expect that our short term performance from time to time will be disappointing.
e-fundresearch: What do you do to get more value added for investors?
Håkansson: We are travelling a lot meeting management and personnel and making best use of our invaluable contact network which altogether gives us an insight into the markets in which we invest. In more challenging times like we have now we intensify the travelling even more.
We try to be on top of the developments and work hard on tapping into selective stocks that may be attractive from a growth perspective.
We diversify our investments and also recommend our investors to seize the opportunity presented by current market lows and invest regular sums rather than chose one entry point which can be difficult in volatile and uncertain times.
We also share some of our findings with our investors organizing East Capital Summits in the region which gives investors the opportunity to meet themselves representatives from the portfolio companies as well as see the developments in the region with their own eyes.
e-fundresearch: How long have you been a fund manager?
Håkansson: Since 1998 when we started East Capitals first fund “East Capital Russia Fund”.
e-fundresearch: What have been the biggest successes and failures in your fund-management career up to now?
Håkansson: Having identified the Eastern European stock markets very early on and understanding their long term potential is the biggest success. The largest failure was starting our first fund a couple of months too early. In early 1998 we wanted to start the Russia fund and waited while the market came down 60%. The only problem was that the fall was not over and the Russian crisis in August the same year proved to be a big challenge. Luckily we stuck with our long term conviction of Eastern Europe and the following year was very rewarding for our investors.
e-fundresearch: In what kind of capital-market environment do we presently find ourselves?
Håkansson: The fact that 2009 will be a very challenging year in the real economy does not necessarily mean that the financial markets will be under pressure, as financial markets and underlying economies do not always move in tandem. Economic growth was overall strong in Eastern Europe in 2008 whereas most markets corrected substantially, which has resulted in very attractive valuations. The slowdown in underlying growth means that investments and consumption as well as exports will be reduced and corporate earnings pressed down.
There should, however, be some selective markets, sectors and companies that will perform relatively well although the rebound may take longer than in previous periods. Some of the largest economies in our universe, such as Turkey, have limited economic imbalances and also have among the most attractive market valuations in the region. Russia could surprise on the upside but remains vulnerable to low oil prices. Some markets in Southeastern Europe, most notably Serbia, also look relatively attractive based on the continued convergence with the EU and low valuations.
e-fundresearch: How are you dealing with this environment?
Håkansson: By tapping into the selective stocks that may be attractive from a growth perspective. Ultimately, unleveraged consumption companies that are targeting non-credit related consumption and infrastructure companies that benefit from state investment ought to be interesting. Valuations have been pushed down considerably after the heavy and indiscriminate sell-off in 2008. But as most world equity markets look cheap at this point, low valuations are not necessarily enough for a rebound.
It is more important than ever to keep close to the markets and the companies we invest in, as the general level of risk is higher than before, hence our intensified travelling pattern.
e-fundresearch: What are the specific challenges being faced in the current situation?
Håkansson: Many investors faced heavy losses in 2008 and rebuilding confidence takes both time and perseverance. East Capital was set up in 1997 and had to face the Russian crisis of 1998; what we have learned as an organisation from this period is the importance of keeping a long term perspective and consistency in our investment style.
So one key challenge is to communicate to our investors – in a credible way - the reasons for hanging in there as investor in Eastern Europe and continue to think and act long term even in these tough global market conditions. For mainly two reasons; the growth potential (Eastern Europe continues to grow faster then Western Europe and the convergence process is still in place) and EU accession driving these economies forward. There are no guarantees. The Eastern European markets, with their continued low valuations, are in our view, far too exciting to ignore.
e-fundresearch: What are your goals in the short-term before the end of the year and in the medium-term for the coming three-to-five years?
Håkansson: Our goals are always to provide the best possible return for our investors during the coming three to five years and even longer. That means that we focus less on the short term.
e-fundresearch: Which results would you consider as excellent, neutral or disappointing in three years?
Håkansson: Our aim is to beat benchmark indexes as well as competitors. When we judge our performance this include return but also what type of risk we take on. So being a top performer with lower risk is the ultimate goal.
e-fundresearch: Do you have any role models?
Håkansson: We are very long term in our views and approach to the market so the one that immediately comes to mind is Warren Buffet with his sound views and long term investment targets.
e-fundresearch: What motivates you as a fund manager?
Håkansson: It is intellectually stimulating to try and understand different companies and how they succeed. It is also very rewarding to be able to meet strong entrepreneurs and business leaders from many different countries. We also like to think that we, in our way, contribute to the long term development of Eastern Europe.
e-fundresearch: What do you want to achieve and what are your further goals as a fund manager?
Håkansson: We have seen fantastic development in the region over the last 11 years. It is a region which many people still are discovering as an investemnt location. Our hope ist that we will be able to introduce many more investors to this exciting region since we believe that this is one of the best places to invest your money fort he long term. So far we have 450 000 clients so there are many more potential clients around.
e-fundresearch: What profession would you like to have, if you were not a fund manager?
Håkansson: I really can not think about doing anything else than what I am doing. The only alternative would be as a financial analyst which involves many of the elements in the fund management job. Before becoming a fund manager I was working with research and was Global Head of Research at Enskilda Securities.
e-fundresearch: Thank you for the interview!
Mr. Håkansson founded East Capital in 1997 and is today Chairman of the Board and Fund Manager. Before starting East Capital, he spent a total of ten years at Enskilda Securities in London, Paris and Stockholm - his last role as Head of Equities at Enskilda Securities and also Global Head of Research. He was one of the very first to discover the Baltic and Russian equity markets at the beginning of the nineties and started already then to visit many companies in Eastern Europe. Mr. Håkansson has repeatedly been awarded the Golden Star for best Fund Manager by Morningstar and Dagens Industri. He is also a board member of the Swedish-Russian Chamber of Commerce. He is a graduate of the Stockholm School of Economics and has also studied at EDHEC, France. He is fluent in Swedish, English and French.
