Russian Sources Talk about Sovereign Capital Mgmt.

As questions have arisen over Sovereign Capital Management, an international investment fund which has become the largest shareholder of SK Corporation, the group explains that it has experience in improving corporate governance in the Russian market.

"Sovereign was first founded as New Zealand’s `family fund` 10 years ago. It was reported to have secured huge amounts of capital after it made profits in emerging markets such as Russia and Brazil," a source familiar with the privatization of Russian public corporations said.

Sovereign is now investing in Gazprom, Russia’s state-run gas giant, and Russia’s national electricity company United Energy System (UES). Some influential figures including Boris Fyodorov, Russia’s former finance and tax minister, are in full support for Sovereign’s activities. It is said that though its investment strategy is aggressive, it does not exercise its influence over the management of companies whose shares it holds.

Therefore, it was surprising that the company urged SK Group to enhance its corporate governance. "I’ve never heard that Sovereign was aggressive in enhancing corporate governance for companies including Gazprom," said a Russian specialized investor.

Last year, an investment company called Sovereign had to leave Russia because the company was involved in a financial scandal. The Sovereign Group including Sovereign Forex Ltd. and Sovereign Capital Management pulled out of Russia last October when Swiss prosecutors conducted an investigation into the group.

Due to vigorous activities in foreign exchange and financial investment in the Russian market since the mid-1990s, the group’s volume of business has reached 120 billion dollars. However, it is still not clear whether the group is related to the same “Sovereign” that acquired SK Corporation shares.

Ki-Hyun Kim kimkihy@donga.com