In the weeks after the invasion of Ukraine, most big asset managers rushed to write the value of their Russian holdings down to zero. With the stock market closed and sanctions imposed, investors were told to assume that billions of dollars in Russian assets had become essentially worthless.

Dave Iben, chief investment officer of Kopernik Global Investors, calls that caution a “marketing ploy” that understates Russia’s potential and penalises current investors in hope of juicing future returns.

Kopernik’s $7bn global value-oriented funds had roughly 14 per cent of their holdings in Russian companies before the invasion. Iben’s team has cut their valuation of stocks such as Gazprom, Sberbank and Polyus by an average of 70 per cent, rather than all the way to zero.

“Marking them to zero is unfair because it is likely these companies still have a lot of value,” he said. “If you mark it to zero, new people coming in to a fund get a bargain. Anybody leaving the fund is getting zero for something that probably is worth something,” he said.

His view stands in contrast to the practice at most big asset managers, who have opted to give investors all the potential bad news up front. Morgan Stanley, Goldman Sachs, BlackRock and Franklin Templeton all marked Gazprom shares down from above $4 to less than 10 cents, according to data from FactSet on the pricing of exchange traded funds. Sberbank shares have similarly been written down from $3.60 to no more than 2 cents.

Iben admitted there is a “real possibility” that sanctions or other government action will make it impossible for his investors to realise the value of their Russian equities. But he added: “It’s also highly possible that they’re not permanently lost.”

If the expected value was positive, it was not fair to price it below the expected price, he said. “Maybe it’s a good marketing ploy, but it doesn’t seem fair to us,” he said.

Kopernik calculated that the invasion wiped about $700mn off the value of its Russian assets but funds have more than made up the losses through gains on its energy holdings elsewhere.

Challenging the crowd comes naturally to Iben and Kopernik. The fund is named after the Renaissance Polish astronomer better known as Copernicus, who punctured the orthodoxy that the sun orbited the earth.

Florida-based Kopernik looks for companies around the world that it believes are undervalued even after discounts are applied for political and economic instability. Before the invasion of Ukraine, its models applied a 50 per cent discount to Russian corporates and that may increase depending on the conditions under which the country rejoins the global financial system.

Roughly 30 per cent of the funds’ holdings are Canadian and just 4 per cent are American, Iben said. By comparison, its benchmark, MSCI All-World, is 61 per cent US.

Everybody likes the really good franchises that have oligopolies and sell things people need. You pay a fortune for that in the US, but if you’re willing to own companies in Korea and Brazil, and of course Russia, China, Japan, places like that, you can get these really good companies for bargains.”

While many investors are pressing companies to pull out of Russia on moral grounds, Iben was as impatient with that argument as he is with calls to shun fossil fuels to speed the energy transition.

“Selling Gazprom would not hurt Russia in any way,” he said. “We all want less pollution and we all want peace in the world. Selling stocks mindlessly down 90 per cent is not a way to achieve those goals.”



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