Iron Wolf fund takes positive view of Baltics

VILNIUS - Santa Monica, California-based Iron Wolf Partners has been actively investing in Baltic securities markets since 1997. The fund is managed by John Ziaukas, a descendant of Lithuanian immigrants to the United States.

He is a Harvard Law graduate who spent 10 years on Wall Street prior to decamping with his young family for the warmth of the Pacific coast. Ziaukas has a lot of positive things to say about the Baltics.

"My economic prognosis for the Baltics is that the great strides made in the past decade will continue: 50 years of economic catastrophe are being undone in a matter of a decade or two. If one had said in 1985 that in 15 years, Vilniaus Bankas would be one of the leading banks in Eastern Europe, few people would have believed it. But now it is true. There is no reason that per capita GDP and other measures of wealth should not, over the long term, converge with those of Lithuania's Scandinavian neighbors. Workers are skilled and there appears to be a social consensus for economic progress," he said

While the traditional name for Iron Wolf partners would be a "hedge fund," Ziaukas is not entirely comfortable with this. "I prefer to use the term investment partnership," he said.

A hedge fund is usually a partnership managed by a general partner and exists as an investment pool. The best international example is the Quantum Fund managed by George Soros. Hedge funds can invest in virtually anything, provided their organizational documents empower them to do so (e.g. U.S. securities; bonds; commodities; overseas financial instruments of any kind; real estate.)

They have been blamed in the past for contributing to financial instability, because some make leveraged (i.e. borrowed) investments for a short period of time, and as they enter and exit the market, can have a sharply jarring effect on it.

"Iron Wolf does not use leverage (that is, it does not borrow money to make its investments). My time horizon is long-term: three to 10 years. Of the 25 different positions, Iron Wolf has taken in Lithuania since 1997, we still hold 23 of them. The only positions sold were in the tender offer for Medienos Plausas two years ago and the acquisition of the shares of Hermis Bankas by Vilniaus Bankas this past autumn," he said.

The minimum investment in Iron Wolf is $25,000. The names of the specific investors are confidential, but they are accredited investors as defined in U.S. securities law, meaning that they can demonstrate either a certain level of income or net worth or that they are sophisticated about financial matters.

"My limited partners include business professionals, Wall Street bankers and venture capitalists and an offshore fund that invests generally in securities throughout the 15 countries that were once Republics of the USSR and Eastern Europe," Ziaukas said.

In his capacity as Iron Wolf manager, Ziaukas also feels he can personally contribute to the economic development of Lithuania. "The goal of my limited partners is to profit from the economic transformation of the Baltic Republics. My own personal ancillary goal is to encourage the integration of Lithuania with the financial and investment community of Europe, specifically the growth of its relations with EU countries and its non-EU neighbors and the United States. This is because I believe, as a historical and political matter, Lithuania's political future is best assured and safeguarded by its prosperity and its ties to the other members of its community of Western democracies, he said.

Changes in Lithuanian pension law are also a good omen for the country.

"I think that revisions in the pension law to permit investment in equity securities, and a perception among residents that securities are an appropriate vehicle for saving, once the populace has sufficient funds for investment rather than only enough to make ends meet, will have a snowball effect as Lithuanians invest in themselves. But the confidence of the populace is very hard-won for the financial community - witness the banking crisis of 1996, a few short years ago," said Ziaukas. Ethnic tensions are the main drawbacks as far as in Latvia and Estonia.

"In Latvia and Estonia, I am also optimistic; I see the main potential problems in those countries as being antagonistic ethnic relations. Lithuania has had the good fortune, and the wise judgment, to avoid these problems. I am hoping that a rising tide of prosperity and political stability will dampen the corrosive effects of ethnic infighting, particularly in Latvia," he said.