After February 24, the Loko-Invest source bought up almost all government bonds that investors, including foreign ones, frantically sold on the market. And six months later, when prices almost doubled, he sold everything at a big profit. How does the president of Loko-Invest earn double-digit yields on low-yield bonds?
On March 21, 2014, the head of Loko-Invest, Pavel Voznesensky, was on a business trip in London; on this Saturday, the Federation Council ratified the admission of Crimea to Russia. Voznesensky immediately called Moscow and ordered his managers to sell at any price all the government bonds in the portfolio. He expected the market to crash. But investors after the annexation of Crimea were in euphoria; in the first couple of trading days, Loko-Invest liquidated all long positions without much effort, although it recorded a loss. And the Loko-Invest team met February 2022 prepared.
On February 14, 2022, the whole team flew to a training in Sochi to discuss new trading strategies and make forecasts. The graphs on one of the slides showed that something similar to 2014 could repeat itself in 2022, with an increase in the key rate of the Central Bank to 15%. There was another important forecast – the tightening of monetary policy in the United States. “We did not bet on a “special operation” *, but we assumed a high probability of shock scenarios. Most of the team members were sure that something very negative for the market would happen, and we met on February 24 in short positions in OFZ, says Voznesensky. – On the morning of the first day of the “special operation”, we promptly discussed the new introductory and decided to close the shorts and get up in the long. And we turned out to be almost the only OFZ buyer on the market — we bought everything we could on the stock exchange at 50–70% of the face value.”
Trades went on for two days, then the Moscow Exchange closed. Loko-Invest, according to Voznesensky, took on the balance sheet the largest long position in OFZ in its history, that is, the company had never bought so many securities at the same time before. The Moscow Exchange reopened on March 21. Voznesensky's team continued to buy government bonds – not only OFZs, but also sovereign Eurobonds at a price of 60-70% of the face value. We chose securities that provided for the possibility of payments in rubles and which were deposited in Russia.
Approximately by the middle of summer, investors got out of their stupor and started buying up Eurobonds, the market began to rush, prices soared to 110-120% of the nominal value. Loko-Invest sold everything it bought in March. By that time, the Central Bank had already begun to reduce the key rate, and OFZ prices rose to 90-100% of the nominal value. Voznesensky's team sold all the papers they bought in February.
From sewing to a bond desk
Pavel Voznesensky is a hereditary financier. In honor of his great-grandfather, Nikolai Alekseevich Voznesensky, the St. Petersburg State University of Economics was named. Before the Great Patriotic War, Nikolai Voznesensky headed the State Planning Commission for two years, in 1943 he was elected a full member of the USSR Academy of Sciences in the Department of Economics and Law, in 1947 he became a member of the Politburo of the All-Union Communist Party of Bolsheviks, was arrested in 1949 in the “Leningrad case”, in 1950 shot, rehabilitated after the death of Stalin. After great-grandfather Pavel, all the male Voznesenskys were involved in finance.
But at first he found it boring. And after the eighth grade of high school, he went to a vocational school to become a master in tailoring women's clothing. The insight came during practice at the Vympel factory, where women's outerwear was sewn. “There were two types of workers at the plant: middle-aged women who sewed endlessly on the assembly line, and former convicts who learned this profession in the zone. They repaired cars,” Voznesensky recalls. – And my social circle before that consisted of a very intelligent family and a pretty good school. It sobered me up right away.” And he decided to still get an education.
Voznesensky entered the Financial Academy in Moscow in 1994, after spending a year to restore school knowledge and prepare for admission. He majored in insurance, but the stock market seemed more promising. By the time he graduated from high school in 1999, he was already an active bank employee with three years of experience and a mobile phone, from which he gave orders for transactions with GKOs. The bank was called modestly – “Russian Elite Bank”.
Then Voznesensky traded bonds in the Moscow office of Turanalem Bank, owned by Kazakh businessman Mukhtar Ablyazov. In 2009, he was charged with organizing a fraudulent scheme in Russia to steal $70 million. In 2009, the bank was nationalized, but a year earlier, Voznesensky moved to Loko Bank.
“I came to Loko Bank as an already accomplished top manager and a fairly wealthy person, but with unfulfilled ambitions – I wanted to create the perfect bond desk,” he recalls. In 2009, the Russian market lay in ruins after the global financial crisis, and Voznesensky was able to assemble a strong team. Voznesensky created as if for himself – it had to be such a structure where he himself would be ready to invest his money. It was with this idea that he came to the shareholder of Loko Bank, Stanislav Boguslavsky. He invited him to become a shareholder of the bank. Voznesensky refused – he wanted to develop the investment business. And Boguslavsky gave the go-ahead.
Loko-Invest currently manages $350 million, among the clients there are members of the Forbes list. One strategy is an aggressive hedge fund that uses a variety of tools, from duration management (the effective term to maturity of a bond) to leverage (the ratio of equity to debt). The strategy has been bringing, according to Voznesensky, 25% per annum in rubles since 2011. Since 2018, this strategy has been available in USD with an average annual return of 20%. But this return comes with a lot of risk. In Loko-Invest, they trade government and corporate bonds, Eurobonds, that is, securities that initially bring low yields. It is increased through active management of duration, leverage and risk. “This is a rather risky, even aggressive strategy, but we have been doing this for 12 years,” says Voznesensky.
The level of risk that the head of Loko-Invest is ready to take personally is eloquently evidenced by the fact that in 2014 he pledged his real estate in a bank to invest in the stock market – this is a strategy that financial advisers always warn their retail clients against . Voznesensky gave the money to manage himself, and he was lucky: in 2015, the bonds brought a yield of 200% per annum, in 2016 – more than 100%.
In all decisions made by Loko-Invest, a large proportion of macroeconomic analysis and forecasts, as well as risk models. “If the model shows that difficulties are possible, we sell,” says Voznesensky. This was the case in 2018, when the Central Bank suddenly raised it by 0.75 p.p. in the middle of the rate cut cycle. , but completely removed the risks from client portfolios. We finished the year in positive territory, earning about 3.5% per annum, and the next year we earned more than 30%,” recalls Voznesensky. Many clients then left without experiencing a 15% drop in the value of their assets. “This story shows that there is no infinite gain, you cannot promise anyone anything,” Voznesensky philosophizes.
Another key to success is the ability to correctly interpret the messages of the Central Bank, he adds: the credit policy of the Central Bank is quite readable, we have a predictable Ministry of Finance, but you need to hear and see.” Loko-Invest's forecasts and strategies often diverge from the mainstream.
The fund's strategy can be called opportunistic, although Voznesensky himself does not like this word. “I’ll ask you not to express yourself in my house,” he jokes. For example, in 2021, most market participants were buying long OFZs — the consensus forecast was that prices were at the bottom. Loko-Invest spent the whole year in floating-rate bonds (the so-called floaters, the yield of which is tied to money market rates). “We thought the prices would be even lower. As a result, the index at the end of the year turned out to be negative, and we received a double-digit return,” says Voznesensky.
Voznesensky is not just the president of Loko-Invest, but also the right hand of the owner of Loko Bank. Although he himself says that he would not call himself that. In addition to the fund, he is also engaged in various special assignments, in particular, he is trying to buy a bank in friendly jurisdictions, including the UAE. “I have a broad outlook, so I am involved in various tasks as an expert,” he says. In addition to a bank, he runs an investment house in Dubai to buy stocks and bonds for clients that are not available from Russia.
I don’t have a state bank behind me, so I have to do something unique, says Voznesensky. “In this sense, Wall Street funds are in a similar situation: they have a competition of teams and strategies.” He speaks briefly about the current situation: this is a global geopolitical conflict and a cycle of raising rates, the question is how far this will all go. And the current optimism of many investment houses seems excessive to him.
