Home Dr. Kohlhase Vermögensverwaltungsgesellschaft mbH

NESTOR Eastern Europe - Quarterly Report 1/2022

In normal cases and in normal times the portfolio manager of NESTOR Eastern Europe fund should and would write the quarterly report of the Fund from point of fundamental view.

In normal cases and in normal times the portfolio manager of NESTOR Eastern Europe fund should and would write the quarterly report of the Fund from point of fundamental view, informing investors what kind of normal cases influenced companies into what the Fund invests. I would be very much happy if I could do this. But unfortunately, this time I should write about something very different. In the first quarter of 2022, on February 24th Russia attacked an independent country on its own decision, Russian armies invaded Ukraine. This completely unexpected and unacceptable crime had extremely huge negative impact on the Fund’s investments.

The political reaction from the EU, USA and Great Britain was fast and very tough. The Central Bank of Russia and some leading Russian banks were cut off from SWIFT financial settlement system, Russian assets held abroad were frozen, hundreds of companies and individuals were sanctioned. Although the main punch couldn’t be finished yet, as the most painful event would have been to immediately stop buying gas and oil resources from the Russian market.

The reaction on the financial markets was dramatic. Although the local Russian equities were suspended due to the decision of the Russian Central Bank, the ADRs and GDRs listed on London Stock Exchange went through a total knock out, all of them lost 99% of their value. Investors were escaping from everything that had any relation to Russia: the price of Russia Rubel, Russian government bonds parallel with equities collapsed.

Both Euroclear and Clearstream as custodian service providers denied making any settlement in Russian Rubel, so a significant part of the portfolio cannot be sold at the moment, which is a big liquidity risk for the Fund. By this reason, the Board of Managing Directors of LRI Invest S.A. has resolved pursuant to article 8 of the management regulations of NESTOR-FONDS (the “Fund”) to suspend the calculation of the net asset value of the Sub-Fund NESTOR Eastern Europe fund as of 1 March 2022 until further notice.

The rest of the portfolio, the Polish, Hungarian and Czech investments also were influenced by the war. As many companies have significant Russian asset proportion, these companies were hit in the very negative market sentiment. Especially larger banks and Polish retailer companies suffered from a double digit price decrease in this period. NESTOR Eastern Europe fund has lost 29,56% in euro term in the first quarter of 2022. Of course, the worst performer was the Russian market, followed by the Hungarian and the Polish markets.

At the moment noone knows when and how the war will end, how and when Russian assets might be tradeable again. In this situation nor the issuer, nor the portfolio manager can give any promise regarding the future of NESTOR Eastern Europe fund.

Peter Elek, Dialog Investment Management Ltd.