Hedge funds in Russia

Do you have local hedge funds in Russia?

Asked by Alexander, Paris

I'll give you just a brief outlook, as there is a lot to say on this dynamic part of the world economics.

HISTORY & THEORY

Comparing to the US, where the first hedge fund was created in 1949, Russia was a late bloomer to provide conditions for operating hedge funds.

Soviet economy didn't believe in trading, so it was only in 1996 when the first a hedge fund Diamond Age Russia Fund (with assets of over 20 million dollars) was registered in Russia. As the site of the company says, the fund's investment objective is to generate maximum (absolute) long-term USD capital appreciation through an actively-managed, concentrated, hedged portfolio of Russian and Russia-related securities. Its activity had its ups and downs but the fund has managed to stay on the surface despite of various events (like local financial crisis of 1998) rocking Russian economy during the last decade. It managed to stay rather unique on the market for a long time but since economy always looks to maximize the profit....many of those investors who were restraining from investing in Russian economy before looking at the performance results quickly considered a change in their plans. Since mid of 2000-s investments in Russian showed stable returns and immediately the country was considered by those funds whose investment strategy was based on investing in highly risky but also highly profitable emerging markets economies (up to 25% of return comparing to 11% of other types of hedge fund strategies) .
As you can see from the table below almost all hedge funds (with Emerging Markets investment strategy) in 2009 over performed the previous year (first column 2009 results, second column 2008)




Experts suggest that last years Emerging markets hedge funds drew in over $9bn in new assets. This is more than was investing in this area 5 years ago when only $3.3bn was put into these types of hedge funds.

LEGAL BASE FOR HEDGE FUND IN RUSSIA

According to Russian legislation published in 2007 (Federal Law of the Russian Federation "On the Securities Market" and Federal Law of the Russian Federation "On the Investnment funds"), the hedge-fund is an investment partnership which can invest in not only securities (actions, bonds, etc.), but also in derivatives (options, futures), precious metals, as well as very risky investments, such as, for example, purchase of football club or objects of art.
These funds operating in Russia must be managed by professional professional managers or operating companies which obtained a license of Russian Federation.
Thus the asset's structure of Russian hedge-funds is determined by local legislation, as well as who can be considered eligible for to become investor of a hedge fund:

• One who owns securities and (or) other financial tools of total cost no less than 3mn RUR;
• One who has an operational experience in Russian and (or) foreign company which worked with securities and (or) derivatives;
• Performed quarterly within last 4 quarters not less than 10 deals with securities and (or) other financial tools which cumulative price for specified time has been not less than 300 thousand RUR, or concluded within last 3 years not less than 5 deals with securities and (or) other financial tools which cumulative price has made not less than 3 million RUR.

The most important criteria of abowe list is the last one - a prove to have necessary funds at the investor's disposal.

Of cause it will be unfair to say that hedge funds are easily accepted to work on Russian territory. Recent events during the process against local lawyer of London-based Hermitage Capital Management fund (who died in prison waiting for the trial) showed that Russian legal system is still vulnerable and confirmed that Russia is a real emerging market country with all following consequences and constrains.

NOWADAYS

As for today there are 6 hedge funds operating in Russia.

One of which is Prosperity Capital management (from top 30 European hedge funds classification) which currently has $4.1 bn under management and owns shares of many Russian and ex-USSR companies.

The others have less assets under management but they definitely will try to profit from post-crisis economy recovery.

And finally...REAL JAMES BOND GIRL

The shortage of local hedge funds are definitely compensated by the interest of local people ))))))....or those who are concerned by business intelligence (like recently (June 2010) accused of spying in Russia's favor US based personal assistant of the CEO of London-based hedge fund Navigator Asset Management Advisers, Ms.Anna Chapman, for example)

Russian business ethics

I am a student (business school to be more precise, based in Paris) and I am working on an oral presentation. The real topic is "How to do business with Russian people". Your blog helped me to know some of the habits that you have in this country. But I was just wondering if you could give me a hand on "the do's and dont's" with Russian people, especially in an business context.

And if you are aware about what a foreigner has to do before enter the country, I will be very grateful!

Asked by Naima, Paris

Dear Naima, I had to do a big research to answer your question...and am sure there is a lot to mention. So to meet the expectation of a business school student, I'll try to be short (PowerPoint presentation style?))
Some practical advice is given below although the majority would be applicable for many other countries (!). However, the expectation to see the Western model working in Russia like in other European countries could bring nothing but troubles.

• Be patient. It's known that “time is money”. As a result, Western businessmen are often impatient. They love to check the cost of time. In Russia, this, to a certain extent, is an unlimited resource. Patience is the major Russian virtue so Russians are accustomed to waiting for what they want. Foreigners, who expect a quick conclusion of a transaction can be really disappointed.

• Be ready to meet Russian managers who often have dual ethics. It is necessary to understand the difference between “ours” and “theirs”. Some studies in this area explain: “As a rule, managers have the highest ethical standards in the circle of their personal connections (“our”), but at the same time the same people can easily violate all ethical standards with respect to “theirs” (be dishonest, violate obligations, break agreements)."

• Respect is everything. Avoid impersonal messages. After obtaining a proposal on paper Russians can put it on hold ( “to mature”) and wait for personal contact. They assume that those who have no time to drop by obviously don't take the offer seriously.

• Build personal relationships. Russians entrust personal relations more than contracts. Remember commercial laws and contracts do not mean as much in Russia as in the West. Some consultants working with Russians specify that detailed contracts often follow an oral agreement concluded during an informal meeting. (Is is really typical just for Russians?)

• Use local consultants. Many business rules have changed since the early 1990s when the first businessmen put their foot on this "terre inconnue". Knowledge of the Russian language and experience in the local environment play an important role. Consequently, it is better to have a local consultant than an expat.

Remember, business ethics are different. For example, "offers" considered by Americans as presents, in Russia are considered as the means for building relationship. Although explicit bribes are illegal in foreign firms, symbolic gifts are usually legal. Such symbols as a rule, are more important than monetary “gifts”, although a certain “tariff” can be necessary for bureaucrats to advance paperwork.

• Emphasize exclusiveness. Russians prefer exceptional relationship. Foreigners frequently share financial information with competitors hoping to conclude more successful transaction. Russians, however, rarely do so.

Expectations of Russians

• Russians can overestimate the interest of an investor in the Russian market, while foreigners are really only examining potential possibilities.

Time management
Your Russian partners can have overloaded and badly planned agendas, which simply reflect the real state of affairs concerning time management in Russia.

Advantages

Russians can expect both organizational and personal advantages from negotiations. This means that those who lead negotiations can look for some personal benefits. (Will my personal financial and official situations change? Will there be any trips and other perks for me?)

Negotiations

Thoroughly select your delegation. Age and status are very important as well as gender, by the way. Women and young managers have a harder time gain the trust of Russian managers. Naturally, Russians prefer to deal with those who occupy important positions. Negotiations with junior representatives are received, at best as temporary and impersonal, and, at worst, they can be considered insulting.

Cultural
Even if many Russian businessmen have studied abroad and traveled around the world, people can still underestimate international cultural differences.
And last but not least. Be ready to drink ))). It is common in Russia spend long hours at working dinners (But I guess, you read about this Russian tradition before from other sources))))

P.S. To answer your last question, I have to invite you to read my introduction note )))))
Do a little bit of home work, please Google Russian entry visa information!

"Marry a Russian girl "

In year 2008, a book fair was held at New Delhi where there was a special stall for Russian books. There I met with a Russian craftsmen. We talked for sometime and I asked him about literature of Fyodor Dostyovasky and Leo Tolstoy.
Apart from there names, he didn't know much. He introduced me to his family, he gave me his phone no and address in Kazan.
At the time of departure he advised me to "visit Russia and marry a Russian girl?". Listening the word "marriage" I became suspicious and left from there.

But this incident keeps on rolling in my mind to this day. Can you tell or interpret what possibly might have been the intent of that person.

Asked by Sanju, India


Dear Sanju,

Of cause I cant get into the mind of another man but somehow, judging from the your letter, I would not worry about the mean intentions of this craftsmen, who (I bet) is happy in his marriage ))))) I am sure he meant well proposing you to visit Russia and marry a Russian girl.


I am afraid it will be unfair to the great girls of other nations and will sound like pure marriage agency advertisement, if I list here all qualities of Russian wives ))))... The prove is that there are many of them happily married to Indian men.

I can only advise you ....listen to your heart when it comes to choosing your future wife ))

P.S. Maybe you should just go to visit Russia...and not thinking about meeting a girl but just to see a land of Dostoyevsky and Tolstoy. )) Think about it!

Russians are Europeans ...or not?

Are Russians Europeans or not?

Asked by Om Pratap, New Delhi

Dear Om,

Despite the apparent simplicity of your questions ...the answer always causes major geopolitical debate inside and outside Russia....

I am sure there are plenty of dissertations written on the description of who- can-be-considered-real-Europeans.-Those-who-are-born-on-the-territory-or-those-who-are-born-from-the-local-parents-etc.... depending on the side taken your question, when it comes to Russia, can have both possible answers.

Russians as nationality - yes)....Russians as citizens of Russian Federation - please read below ))))))))

AXIOM

When it comes to pure mathematical approach and calculation based on math and geography the omniscient Wiki says: "Russia is by far the largest country in the world, covering more than a ninth of the Earth's land area. Russia is also the ninth most populous nation in the world with 142 million people. It extends across the whole of northern Asia and 40% of Europe, spanning 9 time zones and incorporating a wide range of environments and landforms". It could be only added that Europe here is considered as a continent (like Africa, Australia, etc) with a total territory of 10 392 855 km2.
However even if 79,3 % of the population of Russian Federation lives on the territory of the European part of Russia it would be a way too easy to think that this fact makes Russian population Europeans.
HISTORICAL ARGUMENTS or "TAUGHT STUFF"


Even if the territories of restless East Slavs (ancestors of modern Russians, Ukrainians, and Belorussians) caused a lot of headache to late Roman Empire, it was far and away from major European events until 957 when the most influential local Russian Prince Vladimir sent his envoys to study the religions of various neighboring nations.

Suddenly, these far pagan territories promised new income and people to various geopolitical parties.

Thus, Russian Sovereign chose Christianity.

However, the somber churches of the Germans didn't correspond his taste. It was at Saint Sophia (Constantinople), where the colorful ritual of the Byzantine Church was conducted to impress them, so he found what he was looking for: "We no longer knew whether we were in heaven or on earth". If Prince Vladimir was impressed by what saw his envoys, he was yet more impressed by political gains of the Byzantine alliance.

THUS BECOMING OFFICIALLY CHRISTIAN, RUSSIA became ally of ONE OF THE MOST POWERFUL EUROPEAN STATES, EASTERN ROMAN EMPIRE.

Well, sharing religion doesn't make people the same and it was until much later (17 century) when Peter the Great after his own "reality check" had to admit that sometimes progress has to be forced in Russia.

Among various changes in State structure (NEW CAPITAL - ST.PETERSBOURG - named by Peter the Great "WINDOW TO EUROPE") his reforms included changes in social and everyday life:

NO BEARDS,
NO BULKYDRESSES FOR WOMEN,
EUROPEAN EDUCATION FOR SONS OF THE NOBILITY...

All of this was implemented on not a negotiable basis (as often it was done in Russia))))).

He wanted Russia to become part of Europe...and he made her become such.

MODERN TIMES
Having said all of that, it will be extremely unfair to a long and complicated Russian history to say that Russians are Europeans by historical determination.

If you have read my previous posts you must have already noticed that many of Russian traditions are similar to those of other nations and nationalities of not European origin (read Caucasus, Siberia, Far East) Besides, our last official census of 2002 has showed that 182 different nationalities are living on the territory of Russian Federation.They live, mix, get married, share same habits and history.

GETTING SENTIMENTAL or RUSSIAN SOUL

If I may allow myself a little sentimental comment here.

In my humble opinion, the biggest mistake people make when dealing with Russians is just treating them like any other European nation, forgetting the complexity of the territory, size and history. That is why later on when one gets disappointed or his illusions get broken, he tends to generalize and make quick conclusions.
I am sure many problems could have been avoided if behind our European (or Asian) looks people could see mysterious echo of Asian, Middle Eastern, European behavioral traces mixed up with enormous distance and common historical "good and bad"...or simply what others call "Russian soul" (which can really ache, trust my word!)
P.S. So Sir Winston Churchill did get it at the end saying:

"Russia is a riddle wrapped in a mystery inside an enigma" ))))

Fair trade in Russia

My daughter is doing a global challenge on Russia for her beaver scouts badge. We have searched all over the internet to no avail. Can you please tell me the countryside code for Russia also what fair trade products do Russia produce?
Asked by Gemma
BASIC

Fair trade as social movement in Russia is almost non-existent and consists, on the one hand, of few separate active workers and small groups, and on the other is presented by some manufacturers (for example Clipper, Qi-Teas )
I had never seen any fair trade labels on any locally produced item bought in Russia.

Could it be explained by the fact that Russia is not considering itself as a third world producer! It definitely doesn't look like one. (Your daughter will confirm it after the visit ))))

Having said that, if you take a look at the basic list of products usually covered by fair trade initiative among coffee, tea, bananas, chocolate, rice, cocoa, honey, clap, wine, fresh fruit, spices....I can only think of fresh fruits, honey and spices which could be covered by the program.

P.S. Unfortunately, the country code of Russian Federation is impossible to find (if any). I'll add it if I find it.

Choice of Russians: Mr.Darwin vs. God?

I read something recently that the majority of Russians do not believe in evolution.
First of all, I was wondering if this is true?

Secondly, I thought this to be interesting, especially since the United States is more known for extremist views on the issue as well as a traditional pension for listening to crazy as a valid way to run a society. However, I thought that since Russia (for nearly a century, anyway) has been known as a secular government and Soviet times emphasized science (please, correct me if I'm wrong) they would be more inclined towards Darwinism.

Do you think there are more creationists in Russia than people who believe in evolution, and how do you think this affects the society at large?
Asked by Marie, USA
Serious question demanded serious research...et voila!

HISTORY
It is true that Russia is a secular State since January 23rd, 1918.
One of the first decrees adopted by young Soviet State was separating the State and official Church. The separation was not just proclaimed but also implemented by all possible means (elimination of influential people included).
Soviet schools received the order to teach Darwin theory as a part of biology course and always did so. Soviet science was there to prove that God had not influence on the life of new society, where religion was considered as para-science or superstition.
However, we all know that people, in general, don't necessarily agree with the official point of view ...and especially during the difficult times.
It was extremely ambitious plan of the Soviet state to erase religion from the life of its citizens and control their minds and souls...but the beginning of the World War II in 1941 proved that not all wishes come true...even when it was Stalin who wished.
Hard to say, how many of those who fought in the WWII battle fields believed in God and who in Darwin theory, but the presence of the faith during the hardest times showed that Darwin was not the best allay in motivation of the soldiers.
Soviet State had to admit that with limited military professionals, shortage of arms and hidden discontent of civil population (remember 1937 purges) it was hard to count on self-motivation. So at that very moment all prosecuted religions were called to help motivate Soviet citizens. Both Orthodox and Muslims received certain permissions to practice their faith. With restriction ....but still.
As often before, relegious leaders didn't need to be told what to say and how to address to people. Many of them also volunteered to serve in the Red Army but the 1945 WWII victory didn't mean return of faith practicing in people's everyday life.

Becoming less aggressive the State didn't end the prosecution of the religion (many churches and mosques were still closed)... but the special scientific studies had to answer the question on God's existence.
Years later, Soviet cosmonauts had admitted that they've been questioned after returning from the space on what they could have noticed "out there"....some of them admitted that it was after "their open space walk" when they became practicing Christians.

Thus faith and scientific research managed to exist together until the very perestroika when Soviet people finally had a chance to rediscover their traditions and religions.

END OF XX CENTURY

The recent studies of the subject showed interesting facts.
The polls published by Russian independent institute of social and national problems (РНИСиНП) in 2000 showed that by the end of XX century 46,9 % of population openly declared to believe in God, that almost twice is more than in the end of 1970th.

At the same time, the number of those who do not believe in any supernatural forces (10,3 %) has decreased. Thus 25% of people claimed to be hesitating between believing in God or in anything at all.
It showed, that the general number of believing in God(46,9 %) was much less than the general number of adherents of various religions(69,5 %).

The center "Religion in a modern society " which performed the study specified this strange fact in answers of respondents showed that the identification by religion "Orthodoxy ", "Judaism"or" Islam" was rather a way to show the affiliation to special way of life, culture, type of a civilization.
Thus among those who claimed to be non-believers (37,6 %), there were also those who believed in future (1,6 %), signs (14,7 %), in a certain supernatural force (13,2 %), in afterlife (2,8 %), sorcery and magic (3,4 %), in incarnation (2,4 %), etc. " All of this again confirmed that the majority of Russians, irrespectively of fact, if they consider themselves to be believers or not, in actual life, believe in various archaic, pre-christian and pre-muslim ideas, pagan traditions ".

NOWADAYS
Having said that I have to confirm your sources.

Latest polls showed that only 24% of Russian population believe in Darwin theory and this number equals to the one for those who believe that God was at the origin of human creation.
And to be totally honest ......53% of those who responded said that "Darwinism? Never heard this word" )))))))

P.S. Have I answered your uneasy question?

Pets & Russians

How do Russians feel about pets? What are the most popular pets in Russia?

asked by _anzawest_

OFFICIAL INFO
According to the latest 2010 sociological studies (not reflected on the picture) (http://www.amic.ru/news/120790/) 56 % of Russians own a pet. 57% of owners are single people and 56% are married couples. 25% of people blamed their love for pets on the tradition, 22% believe that pets help them to be less stressed, 14% admit that a pet helps them to feel less lonely and 10% had been convinced by their kids.
SO..... the most popular household pet in Russia is not a bear ))))) but a cat.
37% of Russians have a cat.

Interesting to mention that the older the owner is the less demanding he is for the race of his pet.
29% of Russians claim to be happy with an outbred cat and only 8% of owners have a cat of a special breed. (Does the affection has a race??)))

Every third Russian citizen owns a dog. Just live previous case, 19% prefer an outbred dog to 11% of those who prefer a pedigree one.

And only 4% of people give their love to a goldfish (Do we still believe that they make the wish come true?))), 3% to an in-house birds and 2% to other small animals (hamsters, turtles, etc).

SENTIMENTAL

Oh... pets! What would it be like our life without them??? )))) Who of us, growing up in small apartments didn't dream of having a pet.

Well, not even kids )))) Still how many of Russian girls wanted to get a little dog after watching a film on A. Chekhov's "The lady with the little dog"! )))))))

Even those who's finances or flat size don't allow to have a pet at home (and according to the statistics : 43% of population) find their way to fill this gap of affection and express their love to the fauna (well, according to the means and age, of cause)))).

P.S.

Well, I don't want to idealize the situation. Helas, it is true that Russia remains one of the few European countries where you still see wild pets living on the streets, many of which just like in other countries were abandoned by the owners... This of cause has nothing to do with the national qualities..as everywhere it is related to the human characteristics of a person abandoning his pet.