VZCZCXRO3223
OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR
DE RUEHBM #0101/01 0561344
ZNY CCCCC ZZH
O 251344Z FEB 10
FM AMEMBASSY BUCHAREST
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0346
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE

C O N F I D E N T I A L SECTION 01 OF 02 BUCHAREST 000101 
 
SIPDIS 
 
STATE FOR EUR/CE ASCHEIBE AND EUR/OHI SE KENNEDY 
 
E.O. 12958: DECL: 02/24/2020 
TAGS: EFIN ETRD ECON CASC PGOV RO
SUBJECT: ROMANIA: PROFESSIONAL MANAGERS (FINALLY) IN CHARGE 
OF THE PROPERTY FUND 
 
REF: 09 BUCHAREST 427 AND PREVIOUS 
 
Classified By: DCM JERI GUTHRIE-CORN FOR REASONS 1.4 (B) AND (D). 
 
 ¶1. (SBU) Summary.  After a series of politically-motivated 
delays, the Government of Romania (GOR) signed a contract 
with U.S.-based Franklin Templeton Investments to manage the 
Property Fund ("the Fund") on February 25th.  Despite early 
hopeful signs (reftel) that this management contract would be 
signed well before the end of the summer of 2009, political 
considerations and private interests conspired to delay the 
appointment of an outside fund manager by more than six 
months.  The appointment of Franklin Templeton is a victory 
for transparency and good governance, as it follows a free 
and fair selection process.  Franklin Templeton's involvement 
with this 2.7 billion euro fund offers hope that Romania's 
drawn-out property restitution saga is now entering its final 
chapters.  End Summary. 
 
¶2. (C) When the Fund was initially established, one of the 
underlying goals was to transition management from the GOR to 
a professional fund manager as soon as possible in order to 
maximize the value of the compensation granted to former 
property owners.  Unfortunately, inclusion of profitable, 
"strategic" companies in the energy, transport, and 
telecommunications sector proved to be almost too valuable to 
relinquish, resulting in significant GOR foot-dragging.  The 
members of the government-appointed supervisory board found 
themselves charged with eliminating their own very lucrative 
positions, while individual Ministers saw an end to the 
patronage network offered by their sole control over state 
companies. 
 
¶3. (C) There was a palatable shock throughout the system when 
Franklin Templeton emerged as the winner of what turned out 
to be a transparent and unassailable tendering process. 
Lacking any reasonably coherent grounds to overturn the 
selection process, politically connected interests turned to 
delaying tactics, giving the GOR time to reorganize several 
companies within the Property Fund's remit, including the 
"crown jewel" energy companies and airport authority. 
Various pretexts, including the abrupt resignation of the 
chairman of the Selection Commission days before he was due 
to sign the management contract, were concocted, giving the 
GOR breathing room to do the necessary house-cleaning before 
opening the books to Franklin Templeton.  The personal 
engagement, at the Ambassador,s request, of both President 
Basescu and Prime Minister Boc finally broke the logjam. 
Franklin Templeton's patience and willingness to finesse the 
terms of the management contract to win over doubters also 
helped to overcame lingering resistance.  Franklin Templeton 
will now see in the coming weeks whether or not this delay 
resulted in any long-term damage to the Fund's underlying 
assets. 
 
¶4. (SBU) Franklin Templeton plans to bring in an experienced 
in-house team to manage the fund initially, while slowly 
building up a local operation. The team will be under the 
overall direction of David Smart, Global Head of Sovereign 
Funds and Supranationals, with Mark Mobius, Executive 
Chairman of Asset Management, providing additional advice and 
assistance.  Admitting that they are "inundated" with 
resumes, David Smart said that Franklin Templeton plans to 
take its time to identify the very best locals to employ, but 
that he does expect staffing to become increasingly Romanian 
over the medium term.  The short-term goal is to evaluate the 
assets under management and prepare the Fund for a listing on 
the Bucharest Stock Exchange.  Smart added that there is also 
interest in a dual-listing, probably in London, which would 
bring strong corporate governance rules into play, improving 
Franklin Templeton's ability to manage both the Fund and the 
companies it owns. 
 
¶5. (C) Comment.  Franklin Templeton's involvement with the 
Fund will provide real and direct benefits to current 
shareholders.  At the same time, the Fund will be the single 
largest listing on the Bucharest Stock Exchange.  The fact 
that it will be under the management control of a 
well-regarded U.S. company has the potential to pay wider 
dividends, as best-practices are transmitted through the Fund 
to the broader equity market.  This will boost transparency 
and improve corporate governance.  The lingering worry is 
that Franklin Templeton gave away too much in altering the 
terms of the management contract and that the new managers 
will be stymied by vested interests.  The Ministry of Finance 
will remain the single largest shareholder until the 
restitution process concludes, while control over many state 
companies will continue to be split between the Fund and 
various ministries.  Post has sensitized Franklin Templeton 
 
BUCHAREST 00000101  002 OF 002 
 
 
to these issues and has encouraged the company to pay careful 
attention to managing the relationship with the GOR.  Still, 
the process of ceding control is slowly and inexorably 
advancing, improving the long-term prospects for both 
Romanian capital markets and the Fund itself.  End Comment. 
GITENSTEIN