Despite Appearances, Vouchers Are a Profitable Gamble

Amid the raucous controversy over privatization - including calls for postponement, voucher revaluation and wholesale revision - Russia is confirming its status as a contrarian investor's paradise.


What's a contrarian? It's an investor who waits for bad news and popular gossip to drive the price of things down low enough for a profitable purchase to be made before the tide turns.


And the tide, in this instance, will most certainly turn. As about a dozen large investment funds in Czechoslovakia learned, despite overwhelming initial skepticism over that nation's privatization experiment, the time to buy is at the beginning.


How so? The 10, 000-ruble face value of each Russian privatization check or voucher is clearly an accounting fiction, bearing almost no relationship to either asset value or market value. In fact, in the true "primary" market, at the point of


issuance, the value is nil, because each Russian is entitled to one without payment.


From that point on, the market will decide what a voucher is worth.


In other words, the debate over voucher valuation is, like much of what passes for economic discussion here, pure theory. But it will certainly be more than 10, 000 rubles. Probably much more.


Let's look at Prague's experiment more closely. There are some divergences from the Russian plan, but nonetheless there are major lessons to be learned.


One difference was that the face value of Czech vouchers was in fact paid by citizens - 1, 035 koruna (about $35) for 1, 000 investment points each. But almost immediately and quite spontaneously, a clutch of mutual fund-style investment management organizations sprang up, offering to buy the vouchers in return for 10, 000-15, 000 krona payable a year later. In all, 437 such funds established themselves. The biggest is run by the Czech Savings Bank system. One of the top half dozen is a partly U. S. - owned private firm called Harvard Capital & Consulting.


The book value of tendered assets, according to an audit conducted early this year, is about 292. 6 billion krona - about $10 billion. That should mean that each citizen's voucher booklet is worth about 30, 000 krona.


But, the capitalist world is not that simple. There will be winners and,


alas, losers. Most people, about two-thirds, sold their vouchers to the investment funds. and a lot of the funds will almost certainly fail before they manage to keep their pledges of a 10-fold-plus return. The biggest funds, however, should do very well indeed. Under the rules set by the Czechoslovakian parliament they can take in an annual 3 percent of funds under management in fees plus a one-time 2 percent to cover startup costs. In Harvard Management and Consulting's case, for instance, it is eligible to retain about $18 million in fees for 1992 - providing, of course, it moved to buy up shares of enterprises healthy and strong enough to be able to pay off its citizen-investors.


But, at this stage of the Russian privatization program, the competence of the investment funds now being established is not even a question worth tackling. What counts is their ambition - whether they think they will be able to make a go of investment management. and the answer - notwithstanding current controversy and second-guessing of the policy-makers - is a loud and definite yes.


That means there will be instant demand for Russian vouchers, regardless of assets on offer or ultimate ability among the funds to repay.


And that alone makes this another one of the little history-making moments of the post-Soviet era, the first published tip for the contrarian investor: Buy vouchers NOW!