OREANDA-NEWS. Fitch Ratings has affirmed Russian Prosperity Fund Luxembourg's 'Strong' Fund Quality Rating. The fund is managed by Prosperity Capital Management (UK) Limited (PCM).

KEY RATING DRIVERS
The 'Strong' rating reflects the fund's research-driven, bottom-up, active investment approach. It also reflects the depth, experience and stability of the specialised investment team, and an adequate risk and operational management framework. It also factors in the good track record of the fund relative to peers since launch in February 2013 and the solid long term track record of a clone fund, UCITs-compliant Seligson & Co Russian Prosperity Fund, since 2000.

Fund Presentation
Launched in February 2013, Russian Prosperity Fund Luxembourg is a Luxemburg-domiciled UCITS IV SICAV with US 250m of assets as of end-January 2016, investing in Russian and former Soviet Union (FSU)-listed equities.

PCM is the investment manager of the fund. FundPartner Solutions (Europe) SA serves as the fund management company.

Investment Process
The fund uses a long-term, discretionary, bottom-up, activist, investment approach. The portfolio advisor (PA) uses in-depth, fundamental proprietary research to build a concentrated portfolio of around 30-40 positions.

Research focuses on qualitative company and management analysis, with an emphasis on value and catalysts of change. In Fitch's view, the depth of research and resulting thorough knowledge of companies provide it with a competitive advantage.

Decision-making is consensual, but with some reliance on the lead PA. Liquidity requirements and levels of conviction rather than specific risk guidelines drive position-sizing and overall portfolio construction.

PCM closely monitors each stock risk individually, in line with the fund's bottom-up, long-term investment approach and given its concentrated holdings.

Resources
The investment team of PCM consists of seven analysts based in Moscow with sectoral responsibilities. Three of the analysts are also PAs. The large size of the team is a differentiating factor of the fund in the industry. Alexey Krivoshapko is the lead PA. He joined PCM in 2008 and has 14 years of industry experience.

The operational and IT environment is built around proprietary systems, providing well-controlled and efficient workflows. FundPartner Solutions (Europe) S.A., a dedicated management company created by Pictet in Luxembourg, replaced Banque Privee Edmond de Rothschild Europe as global custodian/administrator in 3Q15.

Track Record
Since launch, the fund has performed in line with its peer group. Seligson & Co Russian Prosperity Fund, a clone fund domiciled in Finland demonstrated a superior track record since its launch in 2000. Consistent with its investment approach, Russian Prosperity Fund Luxembourg shows a high stock concentration (10 largest stock representing over 50%) and low index overlap ( 35%-40%), which results in the fund carrying more stock-specific risk than benchmark-oriented peers.

Asset Manager
Founded in 1996 and privately owned, PCM specialises in the management of Russian and FSU equities. The company employs 30 people (16 in Moscow) and had USD1.9bn assets under management (AUM) as at end-January 2016.

RATING SENSITIVITIES
The rating may be sensitive to material changes in the investment or operational processes, or resources dedicated to the fund. A material adverse deviation from Fitch's guidelines for any key rating drivers could result in a downgrade of the rating. For example, this may be manifested in the departure of key investment professionals, failure in the risk or operational management framework or in significant deterioration in the fund's performance relative to peers, resulting from several stock-picking errors on large holdings. Fitch sees little potential for an upgrade, given the specific nature of the fund and its already high rating.