Asset manager ICU has seen first-hand the performance of the Ukrainian economy since Russia’s annexation of Crimea in 2014. The London and Kiev-based firm has been for years the largest fund manager and broker/dealer of Ukrainian assets, which is mainly distressed debt.

ICU’s recent dominance was partly because many international investors quit the country after 2014 but the firm said there is still $15bn of loans that the Ukrainian state needs to auction and international investors are once again moving on these assets.

The Ukrainian equities market remains relatively small so ICU’s main investment vehicle, the CIS Opportunities Fund, has cast its net wider and returned 18% net of fees since its 2009 inception.

The lack of public investment opportunities in Ukraine has also prompted the firm to eye private equity opportunities in technology, energy and farming.

Makar Paseniuk, managing partner at ICU, said his firm has about 30% of the Ukrainian fixed income market after almost ten years of investing in distressed debt.

“In 2009 we bought a lot of defaulted domestic corporate bonds and then spent two years working on recovering their value either through litigation or restructuring negotiations. In 2015 following regional macro events similar things happened but on a grander scale.”

Paseniuk said banks started in 2014-2015 reviewing their strategy in Ukraine: “The banks’ shareholders were selling the banks and/or selling the corporate exposure. For a while, we were the only buyer out there.”

Distressed debt is the biggest financial asset class in Ukraine with financial institutions making up a decent proportion of the names.

“Only a few years ago there were about 190 banks in Ukraine whereas now there are about 80 banks left after over 100 banks were taken over by the Ukrainian deposit guarantee fund,” said Paseniuk.

The ICU managing partner continued: “As a result, the state is sitting on some $15bn of loans, most of which are in default. $15bn in the Central and Eastern Europe market is a big number, so comparable with the size of the Italy or Spain for example. It represents a significant investment opportunity.”

The debt is being auctioned periodically by the Ukrainian government, said Paseniuk who added: “We have noticed the auctions are becoming more competitive as more international firms are taking an interest.”

Ukraine still has a long way to go on pension reform and the domestic market is small. ICU has only about $500m of Central and Eastern European assets under management. But Paseniuk said there are reasons to be optimistic: “We are now expecting the launch of the western style privately managed defined contribution system, which would certainly boost the Ukrainian asset management industry and domestic financial market.”

In the meantime however, ICU is exploring private placements in a range of sectors including technology.

Paseniuk said: “Some 13% of Ukrainian graduates have a degree in some precise science or technology while the Ukrainian IT industry has received a boost from spill-over of global growth in technology investments and Ukraine has emerged as the third largest IT outsourcing market globally.”

Ukraine has historically imported much of its energy from Russia despite having Europe’s third largest natural gas reserves.

“Historically Ukraine has been able to buy cheap gas from Russia, so it didn’t make sense to invest in exploration and production but now Ukraine is forced to buy gas at European prices, which should attract capital into exploration, which represents an interesting opportunity of up to $3bn. The government is set to auction production rights before the end of this year or the start of next year.”

Ukraine is the second largest country in Europe after the European part of Russia and the prospect of agricultural land coming to market presents another opportunity.

Paseniuk said: “The government should lift the moratorium on agricultural land which will make land an investible asset and the potential size of that opportunity is huge by all standards. There is at least some 10 million hectares of state owned agri-land, which is a third of Ukraine’s agri-land total.”

He added: “By our calculations, the state-owned land can be valued at least $15bn, which is by far bigger than all state-owned assets advertised for privatisation. For Ukraine, $15bn in potential state proceeds is a very big number and is a game-changer for the Ukrainian macro story.”