ROBIN GEFFEN and Neptune, the investment firm he founded just over five years ago, are hardly household names, but he was the best-performing fund manager of 2006 and has delivered a storming performance in the recent downturn.

The Neptune Russia and China funds, both of which he manages, were ranked first and second out of nearly 2,000 unit trusts last year, with returns of 52% and 50% respectively.

And the China fund has been the second-best performer in this summer’s downturn, with a gain of 28% compared with 12% for emerging markets and 5% in the FTSE All-Share.

It is perhaps not surprising that his fund has done so well: emerging markets have largely shrugged off the credit crunch, with Hong Kong, Singapore, Syd-ney and Mumbai all hitting record highs recently.

However, Geffen is dismissive of analysts who say that emerging markets are in a bubble. He believes their strong performance this summer shows they have “come of age” and should be on every investor’s radar. He also shrugs off people who steer clear of Russia because of the political risk, claiming that there is less danger there than in America.

Geffen graduated from Keble College, Oxford, in 1979 and was instrumental in establishing Britain’s first emerging-market pension fund at Scottish Equitable. He founded Neptune Investment Management in 2002 and manages the Global Equity and Global Income funds, as well as the China and Russia schemes.

We talked to him about the prospects for emerging markets.

How have you outperformed in the downturn?

It was a matter of avoiding banks and insurers in mature markets – US, UK and Europe – and being overweight in emerging markets like China. Banks in Russia came through the credit crunch very cleanly and we had insurers – not banks – in China.

Do you share the optimism that the downturn is over?

I don’t think it’s as simple as that. I think we will have a further leg down in the stock and property markets in the UK, the US and Europe. I think we’re going to have two, possibly three, quarters in the US of seeing further problems coming through.

Will there be a recession in America?

No, I think you have to distinguish between the financial world and the real world. You’re still seeing strong global demand, which has been pushed by phenomenal growth in China, Russia and India.

Equities are a better place to be than cash and bonds, but my view is that people will want to pay a premium for transparent companies where you know what’s going on – and, ironically, many of these companies are now in emerging markets.

If you have a truly global mandate, you have to see that the opportunities lie outside the mature economies. Real growth is a scare commodity at the moment for which people will increasingly pay up.

Can emerging markets really escape a US downturn?

I think people are beginning to appreciate that over the summer, China and Russia did decouple from the US and it is quite possible for that to continue. People have underestimated growth in emerging markets for too long, and I believe that will fill in for any downturn in the US.

But aren’t emerging markets now expensive?

No, you still have upgrades to come through in emerging markets and downgrades in developed markets. I am much hap-pier paying a price-earnings multiple in the mid-teens for an “emerging” economy that is growing at more than 10% than I am for a “developed” country that is growing less than 3%.

I think the argument that emerging markets are in a bubble shows complete ignorance of what is driving them. You have been able to get significant amounts of outperformance from Russia and China over the past two to three years because of the huge disparity between what people think is going on and what is actually going on.

When everyone else is as bullish about emerging markets as I am, then I would reconsider.

Isn’t rising inflation in China a worry?

Over 80% of the rise in inflation has been food, primarily pork, and you have already seen the price of pork bellies fall from its high. If you have such strong growth, you are going to get higher inflation, but in that context it’s acceptable. I’d worry when you’ve got inflation at that level and growth of just 2%.

Where are the opportunities in China now?

The next leg of growth will come through in consumer-facing stocks such as China Life, the insurer, China Mobile, now the world’s biggest phone company, and Shangri-La, the hotel chain.

China is the only economy in the world where the consumer’s share of the economy has shrunk over the last 30 years, from 50% to just over 30%, because growth has been driven by state spending on the industrial sector. But you are starting to see the development of consumer credit in the auto market, which is where you normally see it first in emerging markets.

Isn’t there too much political risk for investors in Russia?

I think there is much less political risk in Russia than there is in America. You can’t tell me who the next candidates are going to be in the US, whereas in Russia there is magnificent stability.

What freely elected leader anywhere in the world wouldn’t cut his right leg off for 80% approval ratings. You have to understand that Putin is extremely popular.

But isn’t Russia just about oil and gas?

No, you have a very dynamic economy there. Pay has been rising by 20% a year for the last three years, but inflation has been falling.

You still have no credit cards, however, no debit cards and only the beginnings of growth in mortgage market. It is an economy where people only buy things they can afford, which you can’t say about the US and the UK.

So emerging markets have come of age?

The things that went wrong in 1997 and 1998 are no longer in place. You have undervalued currencies rather than overvalued ones, budget surpluses rather than deficits and huge foreign currency reserves. It’s a compelling mixture.

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