Elliott Associates, the largest investor in Romanian investment fund Fondul Proprietatea, with 13 percent of its shares, has called for a revision of the contract between the fund and its manager, Franklin Templeton, which would set a higher fee if the management company sells the fund's participation in some Romanian companies in the next three years. Fondul Proprietatea owns participation in several key companies in Romania, some of which still majority state-owned: Hidroelectrica, Romgaz, Petrom, Nuclearelectrica.

The shareholder proposes a higher fee should the fund management's company allot special dividends to shareholders – meaning shared profits between 2012 and 2014 resulting from the sale of assets.

Manchester Securities Corporation, owned by American hedging fund Elliott, says the Fondul Proprietatea Fund shareholders cannot make more money on their investments as long as the fund managers are paid with a 0.47 percent commission of the fund's market capitalization. This fee structure determines Franklin Templeton to run the fund so as to keep the price of shares up, and re-invest the profit, rather than distribute it to shareholders. Manchester Securities Corporation is proposing a 1.5 percent fee of the supplementary dividends resulting from the sale of assets, should Franklin Templeton do this by 2013, and a 1 percent fee in 2014. The proposal, submitted to the Bucharest Stock Exchange, has been included on the agenda for the Fondul Proprietatea shareholders' meeting in April this year. On a long term, the fund's assets, now at EUR 3.5 billion, and its capitalization, presently at some EUR 1.7 billion, would drop, and so would Franklin Templeton's gains.

The fund was created to compensate the owners of properties confiscated during the communist period, when the compensation was no longer possible in kind. The only individual who owns a larger share in the fund is Georgia Palade van Dusen, with 6.13 percent. The City of London also owns 7.21 percent in the fund.

The fund’s portfolio is focused on the electrical energy sector, oil and natural gas – around 88 percent of its net assets. The biggest unlisted company in its portfolio of shares is Hidroelectrica, while the biggest listed company where Fondul Proprietatea owns shares is OMV Petrom.

Fondul Proprietatea is managed by Franklin Templeton, and is listed on the Bucharest Stock Exchange, symbol FP. The fund’s shares were trading at RON 0.53 per share on Thursday ( February 16 ).

Fondul Proprietatea posted an audited net profit of EUR 128 million (RON 543.8 million), an increase of around EUR 20 million (RON 87.6 million) compared to the net profit for 2010, the fund has recently announced.

Elliott Associates is a hedge fund based in New York, created by Paul Elliott Singer. The company currently manages USD 17 billion in assets.

editor@romania-insider.com