Nick Pettinati, managing director of Shell Pensions Management Services, the investment arm of the £8bn ($13.1bn) Shell pension fund, believes the only way to tackle Central and Eastern Europe is to cut out the middle man and do it yourself.

The direct investment route emerged not only as a result of cost savings but also of investment control. Pettinati is slightly dubious of fund managers' capability in the region. You'll first of all know where you have invested, precisely targeted as opposed to many funds which sit on cash and don't target the market correctly - you're not quite sure how they have invested, so you have better control. And more importantly you cut out the 1-1.5% management fee, so you can do it at a pretty marginal cost"

Shell has invested £24m, 0.3% of its fund, in Central and Eastern Europe, an allocation which does not look set to rise much. "I don't think it will ever be much over half of 1%," says Pettinati. "That just wouldn't fit with our philosophy of spreading the risk, no matter how attractive an individual country looks. And these are fairly small markets we're talking about."

Central and Eastern Europe forms part of the emerging markets portfolio which Pettinati feels acts as a counterweight to the Latin American and Pacific Rim allocation: "Increasingly we see the need in what is a volatile portfolio to have the spread, so for that reason we are rather anxious to broaden the basis, which is why we are giving quite a lot of priority now to Eastern Europe."

Pettinati believes in timing the markets, another element which he feels has been missing from funds investing in the region. "There have been occasions when funds have sat on our cash, which we can do just as well and mis-time the markets" he says, adding: "We can time them and target them specifically rather than across the board or just buy an index. Now if you're buying a stock index you might as well do that yourself rather than get a fund manager to do it for you."

He adds: "We have waited deliberately, for example, to go into Czechoslovakia, waiting for the devaluation which has occurred. We are not in a rush to buy at any cost so we try to time it."

Though acknowledging the current popularity of Russia, Pettinati is not tempted to venture that far just yet. "Although we are following events there we don't yet have the agreement of our trustees and I don't think it's likely to be forthcoming for another year." he says. "The market risks have much diminished over the years but in our judgement it is still rather risky - there's all sorts of problems on title, reliability of published financial figures, plus the normal political and currency risks one would associate with a country undergoing such a huge transformation in its fortunes."

Taking a longer-term view, Pettinati is "cautiously hopeful" that Russia will be added to the Shell portfolio, but is taking a position which he suspects is common to most pensions funds: "A watching brief rather than a commitment at this stage.""

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