Unusually for a fund manager, Yerlan Syzdykov has a background geared to calculating the needs of a centrally planned economy.
Born in Kazakhstan and growing up there, he went to the University of Novosibirsk in Siberia, where he studied economic cybernetics.
This was when the Soviet Union still existed and after graduating Syzdykov was supposed to use mathematical models to run the socialist economy by predicting demand and matching supply for everyday items such as red or brown shoes.
“It was not the forces of the market that were to determine how many red shoes were needed in the economy but us. We would determine that mathematically,” he recalls.
However it was a very different world when Syzdykov graduated in 1994, as the Soviet Union had collapsed.
With no need for people with his training anymore, he joined an accountancy firm as an auditor, went to business school in the US, and subsequently got into the world of investment where he focused on emerging market equities.
Now head of emerging markets – bond & high yield at Pioneer Investments, Syzdykov is also the lead manager for the Emerging Markets Bond Fund.
He says his different perspective to that of the classic financier gives him more flexibility to understand how certain cultures and systems operate.
“A lot of western economists and market practitioners have a difficult time understanding what’s happening in China, because it’s mostly a state-controlled, communist regime and economy. Obviously it’s capitalistic but it still has major features coming from the communist time.
“For me it’s easier to understand because they’re slowly transitioning to the model. The ex-Soviet Union had a very dramatic shift in just a few years. China is doing it in a much slower, more controlled way.”
A worldwide perspective
He also says that learning Karl Marx at school and at university gives him different perspectives on the world economy.
So in contrast to those who found French economist Thomas Piketty’s book ‘Capital in the Twenty-First Century’, which won the FT and McKinsey Business Book of the Year 2014, a big revelation, Syzdykov was not wowed by its central argument that capitalism will always create inequality.
“For a lot of people it’s a revelation because before they were just reading about the invisible hand of Adam Smith. The free markets are what people were born with and grew up with, but the reality shows that it’s quite a mixture of different systems that basically change from degree to degree in different countries but the elements of all the systems exist everywhere.
“That is another big advantage from my perspective because I learnt these things when I was in my teens.”
Turning to specifics, Syzdykov believes his understanding of the transitioning path of many economies allows him to be less pessimistic on China today than many other investors.
He therefore has the insight to assess State-owned enterprises (SOEs) in China according to their importance to the economy and any inherent risks, and to appraise which ones will survive the process of transformation.
Strength in numbers
The way in which he operates at Pioneer also reflects his collectivist background, he says, which is “a lot more teamwork-orientated compared to some staff and manager cultures.
I’m not a ‘star’ fund manager. It’s a team that produces these results and we have a Chinese specialist, for example, who helps me to understand the political intricacies of all these risks, even with SOEs”.
Sometimes within this type of state-owned structure, Syzdykov explains “there’s a right and a wrong person who is in a political struggle with another at the helm that could impact the company itself. It may not necessarily be driven by only economics, but also by some of the political undercurrents that I may not see as an obstacle”.
The fund he runs is not constrained by the benchmark, which gives more flexibility in where to invest than other competitor products, he maintains.
Another strength of the team lies in its deep understanding of credit, he says, not only from a sovereign perspective but also from a bottom-up industry perspective Syzdykov still sees a lot of opportunities in China, despite the wariness of others and the evidence that its economy is slowing down.
“China still has a lot of tools in its box they can continue to tweak.”
India is another country where Pioneer is increasingly investing money, though the opportunities are more restricted and smaller scale than in China.
There appears to be a consensus now that India is probably the only big country that has substantial potential for accelerating growth in the future, he says, highlighting the strong potential of a “demographic dividend”.
“That can run until 2040, but the Chinese have just run out.”
Demographic debate
Syzdykov explains this by spelling out the two big themes for China in the past three decades; namely demographic growth, with associated labour force growth, and urbanisation involving a shift from rural areas to the cities, which in turn drove productivity growth in China.
“At the moment they are still going on with urbanisation plans, but demographically speaking, China is running out of steam. The demographic dividend is basically coming to a standstill. India has it still running for them for another 25 years, potentially.”
From the “very limited” investment choices he picks out national champions like multinational conglomerate Tata Group and banks in India, which are predominantly state-owned at the moment.
The way forward will be the formation of a broader set of opportunities there with industrials, consumer goods companies and telecoms, such as Bharti, which Pioneer is already investing in.
“There will be a proliferation of those industries, which are going to be driving growth in India. Most importantly, there will be a lot more opportunities in infrastructure, which will enable us to participate in the industrialisation there.”
