Native Spurs Polish Mutual Fund

When Boston's Pioneer Group looked to establish a mutual fund in Eastern Europe, Poland was the logical choice. With 40 million people, it was Eastern Europe's biggest nation. There were no grisly ethnic feuds within its borders. And Poles had money to invest: Pioneer estimated $10 billion in "under-the-mattress" savings alone, much of it from U.S. relatives.When Pioneer looked for a fund manager, the choice was equally clear. Alicja Malecka was raised in the southern Polish town of Czestochowa -- known for its Black Madonna of miracles -- and educated in Warsaw and New York. She had just begun a U.S. Treasury assignment in Poland."She had done international operations and international banking," said William H. Smith, president of the Pioneering Services subsidiary of Pioneer, who laid the groundwork for the First Polish Trust Fund in mid-1992. "She was at the time on loan to the Polish Ministry to set up its first government bond system. And she was a Pole."Malecka took the job, and for just under two years has run Poland's first, and so far its only, mutual fund. She has built the fund's $100,000 seed money to nearly $1 billion in assets and attracted about 500,000 Poles, with a return last year alone of nearly 200 percent.It was a decision that put Malecka smack in the economic swirl of a country she meant to leave for good in 1969. It has given her professional challenges she once considered "unthinkable." And this is just the beginning. Malecka's next challenges include a $75 million investment fund for Poland, and mutual funds for other, as yet unannounced Eastern European countries."I find it all unbelievably flabbergasting," Malecka said in a recent interview. "It's the only word I can come up with."Malecka had returned reluctantly to Poland. She said she had no fascination for revisiting her roots. She had left the Central School of Planning and Statistics in Warsaw four years into a five-year program, she said, "completely disenchanted with the realities and absence of opportunities in Poland at the time."But 20 years later, world events turned that assessment on its head, and Capitalism rushed into Poland.Rampant optimism brought inflation to match, reaching almost 300 percent in 1989. Legislation has since reined that in -- to an expected 23 percent this year -- while the government worked to convert the massive, state-owned businesses to private firms. Some Poles even started up private businesses of their own. But the practical difficulties of this phase led to rising unemployment and falling living standards, according to Derek Brzezinski, a senior consultant with the U.S. accounting firm Ernst & Young in Warsaw.Still, the Polish economy grew as fast or faster than any in Europe, according to Wlodzimierz Chodzko, commercial adviser in New York for the Polish Embassy. And one bright spot has been the Warsaw Stock Exchange, which stretched from its original five companies in 1991 to 24 as of last month. Its run-up of 700 percent made it the world's most successful market last year.The market sputtered around New Year and crashed from March to April. Such dramatic gyrations are not unusual for new, small markets. But suddenly all those Pioneer ads about safety in diversification caught the Poles' eyes: While the market fell 52 percent, Malecka's fund -- with 10 percent overseas investments, and the rest spread among various Polish stocks and government bonds -- dropped only 6 percent."Let's just say we were considerably outperforming the market," Malecka said. That explains why about half of her 500,000 investors have signed on since mid-December, she said, paying a 5.5 percent sales commission.And that's why Polish securities regulators welcomed Pioneer's plans for a mutual fund, Chodzko said. "They bring accumulated knowledge in something that reaches segments of investors who are not eager for such speculative profits as the stock market," he said.By now, other funds reportedly are in the pipeline there, and the government plans to privatize about 350 more companies this summer.The expansion is important, experts say, partly because regulations prohibit Poles from investing overseas. Also, the tiny stock market has such severely limited investment choices -- and in the process such inflated prices -- that Pioneer chose not even to offer a Polish mutual fund to U.S. investors, Smith said.In fact, none are now sold in the United States, said William McBride, international editor for Lipper Analytical Services, which tracks the mutual fund industry. American investors' best options now, McBride said, are to invest in European funds that include Poland, or in companies now doing business in Poland.