The frontier man

Hedge Magazine, September 2015. Original article p50-52.

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Grzegorz ‘Greg’ Konieczny, Portfolio Manager of Fondul Proprietatea and Director of Eastern Europe / Russia Strategy at Franklin Templeton Investments.

Grzegorz Konieczny is in London this morning, tending to Fondul Proprietatea and its new life on the London Stock Exchange. The Romanian fund has done a fair bit of shaping up over the past five years, which is how long Greg (as becomes of Grzegorz in London) and Franklin Templeton Investments have been in charge. Although things may have changed a lot over the years, Fondul isn’t quite like the other funds: this investment vehicle was originally established to compensate Romanians whose properties were confiscated by the former communist government.

That meant a fair bit upheaval during the early days for the Templeton mandate – even a few scandals. One wonders if Konieczny got more than he bargained for when he took on Fondul? Take what happened with Hidroelectrica back in 2012, the Romanian electricity generation company where Fondul has a 20% stake. “They should have been printing money, but they were hardly profitable. When we got the company reports it became clear that there were a few, say, long-term bilateral contracts,” says Konieczny, always diplomatic in his choice of words, “to sell electricity at prices fixed at half the market rates. So these private traders, they were making some €300 million each year, just for re-invoicing!” The Hidroelectrica managers didn’t want to intervene, and neither did the politicians, so Konieczny and his team saw no other choice but to alert the media: “It was in the headlines for three months. A lot of people started asking us how many bodyguards we had.”

Screen Shot 2015-09-25 at 14.15.03Hiring security never became necessary for the Fondul managers, and Konieczny says he didn’t actually fear for his safety during the Hidroelectrica ordeal. “But we’re not shy. We prefer to discuss privately with companies first, but when we can’t come to an agreement we’ll go the public, or take the legal route. A lot of people don’t like us! But our goal is to unlock value for the shareholders.”

Konieczny’s record proves this assertion, but there’s nothing thuggish about the fund manager sitting across the table from me. In fact, Konieczny comes across as the kind of agreeable person who’ll probably be able to sort things out during the talking stage – at least now that he’s demonstrated what will happen if he doesn’t get his way. But today he’s smiling while telling stories, his almost-perfect English underscored by a Polish accent. He’s wearing a very proper suit and tie, contrasted by a bold sports watch in orange and turquoise. The overall impression is one of a man who enjoys his work very much, maybe even having some fun – this is the frontier of investing! “Yes, Romania is part of the frontier market. But it’s unique to have such a big fund with focus on just one country. The fund is €3 billion – that’s more than 2% of Romania’s GDP.”

At first, the reputation of the Romanian market counted against Fondul as it sought a broader investment base: “The negative perception was: corruption, gypsies, stray dogs!” Konieczny can laugh about it now, as investor education has come a long way over the past five years. Not to mention how Romania has seen improvements in terms of anti-corruption efforts generally, and improved governance within Fondul’s holding companies. “Romania really is one of the fastest-growing economies now, and the potential is huge.” And the rest of the country isn’t a bad place to visit either: “Bucharest was partially destroyed during an earthquake in 1977, and then Ceaușescu continued with the destruction. But it’s a beautiful country. You have the mountains, you have the Dracula story.”

Speaking of Romania’s former life under communism, Fondul Proprietatea still has some ties to its unique past as a restitution fund. The fund is fully private now though, with around 20% of the shareholders being Romanian private individuals. While Konieczny has the same profit agenda as he would with any other fund, the heritage of the original restitution mandate continues to create a slightly different atmosphere. “When we won this mandate, we had no idea how bad the situation was in terms of corporate governance. There was a shock at first,” says Konieczny, who quickly realised this wasn’t one of those mandates where you could just call up brokers to buy and sell:

“We had to be very much a hands-on manager, practically an activist, in terms of engaging with these portfolio companies and the government,” says Konieczny. “The only way to really create value was to be very deeply involved in the portfolio companies. So we sit on boards, we take the legal route when needed, and we lobby for change in market regulation, such as the liberalisation of electricity and gas prices. We also push for more IPOs for companies from our portfolio – all that requires a hands-on approach. […] The aim is to move Romania from the frontier to the emerging market category. It’s been good progress, but it may still take another two-three years.”

Konieczny (44) grew up in Poland, and his family resides in Gdańsk, “on the seaside”. For him to live in Bucharest for work is tough on family life, he admits, although his wife and kids travel together a fair bit together, most recently to London, and before that, to Mexico. His son is in IT and his daughter plans to study fashion, says Konieczny, whose own university years were very different than those of his children, as they coincided with a unique time in Polish history:

“I went to university in 1988, during a time of change of power in Poland – communism was falling. I studied foreign trade and economics, and I remember, in the first semester, they taught Economy of Socialism. Then in the second semester, they taught Economy of Capitalism. That was the change that was happening – so quickly!” The Polish stock exchange was established during Konieczny’s second year at university. Keen to dive in, he started working for a Polish bank and got himself a broker licence. During his third year, he was hired by a bank in his hometown, and worked there for just three years before being hired by Mark Mobius at Franklin Templeton.

Having entered the world of business just at the moment when the Polish market was opening up meant Konieczny found himself in a fortunate position. “It was a huge change. Almost a revolution! Put simply, there were no one with experience in capital markets or market economy. So whatever you gained in one year or two years of studies, or whatever books you read, you really were ahead of the others.” Konieczny admits it wasn’t all plain sailing: “I was very young at the time. But so were the other people who worked for the different campaigns or brokerage houses. Everything was new to everyone, and everyone was trying to make money, but at the same time, we were learning how this industry works.”

Having had this experience in Poland now means Konieczny can bring a lot of experience to the table in Romania. “I was there for the first IPOs in Poland, and then later I was looking at other markets in the region, like Hungary, Czech Republic, Russia. So I’ve seen a lot!” But the challenging part about a country undergoing this kind of major change isn’t so much the regulation, says Konieczny: “The most difficult part, both in Poland and Romania, has been changing the mentality. That takes longer. You can decide to open a stock exchange very quickly. But then for people to really understand how it works, and then to change the way they behave, that takes much longer.”

The sheer size of Fondul Proprietatea means that any change the Templeton team creates in terms of corporate governance often has repercussion for Romania as a whole. But Konieczny doesn’t think about his work in terms of having a change mandate: “I don’t look at it from that perspective. I consider the feedback we get, but to change the country is not my intention. It’s just sometimes a consequence of what we’re doing! We want to run the fund, make money for the shareholders and ourselves, and at the same time be proud and happy with what we do.”

Konieczny certainly seems happy with what he does, at least as long as there’s time left over to play some football at weekends. Asked about his motivations, he recalls an interview with a Polish businessman who was asked the same question: “He said, ‘Every real man should leave home in the morning!’” Konieczny laughs. “I don’t necessarily have to leave home every day, but I need to do something in life. And of course, earn a living at the same time! So this is not bad.”

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