Russia's voucher investment funds, which bought up about a third of enterprises sold off during the first stage of privatization, are facing hard times in the post-voucher world.


Fund managers say that the speed of Russia's voucher privatization program, which turned about 70 percent of the country's enterprises over to private hands in less than two years, forced them to make fast and often ill-informed investment decisions.


While some investors reaped big gains by obtaining shares in privatizing enterprises before the voucher program ended July 1 and Russia's stock market began to take off, voucher funds often suffered because they were too early.


"If I had a time machine, I would not have bought anything until May when oil enterprises and so on began to be sold," said Mikhail Kharshan, head of First Voucher Fund, Russia's largest with about 4.5 million shareholders.


Kharshan acknowledges that around 70 percent of the stocks his fund owns are illiquid, making it nearly impossible to estimate or realize profits.


Burdened with portfolios full of deadbeat stocks, voucher funds now ply the country's capital markets, seeking short-term profits to survive in an increasingly competitive environment.


"They are among the top traders on the securities markets in terms of volume," said Sergei Skatershchikov of the Skate Press Consulting Agency.


Five companies account for the lion's share of trading by investment funds: First Voucher Fund, Alfa-Kapital, Neftalmazinvest, MMM Invest and Moskovskaya Nedvizhimost.


Paradoxically, the same regulations that allowed voucher funds to come into being now technically put them at a disadvantage to other players on Russian markets. The funds, set up to accept and invest the privatization vouchers given to every Russian citizen in October 1992, could not hold more than 20 percent of a company's shares, diversify into other financial services or deal in real estate.


The State Property Committee, which oversees the country's privatization process, is now faced with the arduous task of re-licencing the country's estimated 640 voucher funds and deciding how to regulate them. Tatyana Blokhina, head of the investment funds department at the committee, said the future of most small funds lies as part of the larger funds.


Many of the smaller funds are finding it hard to keep their heads above water in a securities market flooded with foreign cash, where the size of most deals runs into hundreds of thousands of dollars, analysts said.


"They are losers on this market," said Skatershchikov. "You can do nothing with a little block of shares and they are now the subject of acquisitions."


Meanwhile, the larger funds are deciding what niche to carve out for themselves.


First Voucher Fund has managed to skirt the law and sprout a pension fund, a bank and a separate investment company, according to Kharshan. He said his company also frequently buys and sells stocks for third parties, making $8 million profit from these activities in the third quarter of this year alone.


Yevgeny Shidyayev, marketing director at Alfa-Kapital, which claims nearly 2 million shareholders, said his company preferred to act more like a traditional mutual fund.


"Brokers buy and sell for clients," he said. "Investment funds acquire shares for themselves. We are developing our own strategy of what to do with our property -- what to buy, what to sell."


Despite all the difficulties that voucher funds face, Kharshan was bullish about First Voucher's ability to compete with Western investors, which have come to dominate trade in Russia's nascent equity market.


"We can compete easily and simply because they don't know the situation here," he said.


Skatershchikov agreed, saying that voucher funds' close relationship with the State Property Committee and regional property funds gave them an advantage that boosted their competitive position on their home ground.


"They know all the ins and outs, and know where to get shares," he said.