When Ahmett Eren, head of fund management at Kredietbank Luxembourg, wants to invest his clients' money in Central and Eastern Europe, he outsources.

Kredietbank Luxembourg operate through a fund-of-funds structure, directing clients' money out to specialists for reasons of efficiency". Close to $30m is invested in the region via three funds: the Fleming Flagship Fund East Europe (50%), Baring Emerging Europe Fund (30%) and Invesco TAIGA Fund (20%).

"The choice here is productivity," explains Eren. "We have an extensive database combined with Lipper Analytical and Micropal and we go out there and try to find the best fund manager or fund managers on the region, following a pretty strict methodology process and then what we would like to achieve is high return and low volatility. Most of the time you cannot find that couple in one fund, so what we do is combine several of them."

Kredietbank Luxembourg markets itself to clients by explaining it does not intend to be a Central and Eastern European specialist but has the capability to sub-contract to those that are. "We market the product as if we were investing in Central and Eastern Europe so we do our marketing presentations based on macro-economic data, on every single country where the funds are going to be invested," he explains. "Then we say, we have done the due diligence and these three funds popped up and we explain the optimisation process, and the objectives we have set out for the fund as far as risk and reward goes."

The majority of assets lie with the Fleming Flagship Fund East Europe, a decision, says Eren, which was based on similarity of objectives: "It's a fund which has objectives which are the same as ours - liquidity-wise, country risk- wise and also they have a huge team out there and we feel very comfortable with the Fleming product."

The Invesco allocation was reduced for reasons of risk: "Invesco are very hot on Russia - they will go in up to 50-60% in Russia. Although we do not want to influence the management style of the institution, what we do is have an objective. We think Russia is very volatile in order to have 60% so we diluted Invesco."

In contrast, Baring was chosen for its liquidity aspects. He says: "What we like at Baring is they invest in Turkey in Greece, but the company's only doing business in Central and Eastern Europe - but those two markets are very liquid compared to the other Eastern European markets that is giving us a liquidity factor."

Eren is not likely to enter the arena of country funds for the very reason of liquidity, nor does he believe it is a particularly wise decision for pension funds: "On an equity basis, if you want to go to Romania, you have 25 stocks. As a foreign investor the first thing you will do is go into blue chips, so from the 25 which ones are you going to pick - 10, 15 stocks? Then you have a country fund with 10 stocks. That's scary. Or you buy the whole index and that's not the purpose of a fund. Liquidity I think goes against the country fund situation.""