Foreign institutions looking to gain some exposure to the Czech Republic should not waste their time looking for a Czech manager or a domestic fund vehicle. There are many available and there may be some good managers among them, but the unfortunate fact is that the Czech Republic has a less than unblemished record with regard to security of investors' assets.

Fraud has been commonplace and since their inception, Czech investment funds have, at some stages, traded at an average discount to NAV of over 60%. The average open-ended fund was down 28% at one stage. This is hardly the sort of track record to tempt the average pension trustee. As a result, only a handful of Czech funds can now attract foreign investors, most of whom now enter through western-based fund managers.

The blue chips names that have braved the turmoil of the Czech market include ABN AMRO and Citibank. The situation is improving as the authorities belatedly introduce effective market regulations, but a look at the weighting of most east European funds shows a fairly consistent picture of high allocations to Poland and Hungary, but low exposure to Czech.

Although the average Czech weighting of Eastern Europe sector funds is around 8.8% currently, managers such as BBL (26.8%), Regent Discover (23.3%) and Parvest (20.5%) have more faith in the Czech Republic. By contrast several funds in the sector have zero exposure to the market.

In an effort to re-ignite interest in the Czech Re-public, the EBRD is investing Ecu10m ($11m) in two new Czech mutual funds, Sporobond and Sporotrend which will be launched at the end of 1998. The two funds will target retail and corporate investors interested in diversifying their savings and cash management. SIS will be the managers of the two funds.

SIS is one of the largest Czech investment managers, with about 19% of the market in terms of assets managed. Sporobond is a fund which will mainly invest in local government and corporate bonds. Sporotrend will be investing primarily in Czech listed stock and equity-related instruments. The funds will be open ended. By participating in the launch of these two mutual funds, the EBRD hopes to stimulate domestic savings above all, and to build investors' confidence in funds, which is at catastrophic levels currently.

The bank also hopes to encourage the development of domestic capital markets and ensure the application of best practice and EU standards in the field of asset management. Richard Newell