Mila Kletsky places Russian HFs in global context

Mila Ketsky, professor at the Russian Presidential Academy of National Economy, compares Russian hedge funds to their global peers.

Hedge funds in Russia operate under the strict control of the government, with the goal to manage the high market volatility and hedge investors’ risks.

Practically, this means short selling, typical leverage and other hedge fund specific instruments are not permitted here.

At the moment the Russian government is trying to tune its financial legislation to those in the Western European countries, in view of their adaptation to the post 2008 crisis environment.

The situation with hedge funds in Russia is also very different from the West because some of these funds are very young and quite small compared to the mature Western funds, and are usually not aggressive enough in the market.

There are approximately 450-500 hedge funds operating in Russia managing, by some experts’ estimates, a total of no more than $10bn.

To their credit, one has to mention that hedge funds that were established seven or eight years ago still retain their institutional Western clients, namely those who enormously benefitted from the Russian market boom of 2005-2006.

These clients disregard even the poor performance of some of these funds for the past one-two years. They probably consider it reasonable in the sluggish Russian and global economy.

If even such a “star” of the financial markets as James Simons’s Renaissance Institutional Equities Fund lost 4,6% in 2009 (according to Bloomberg Markets), it is difficult to blame such funds as the comparatively young and small Russian UFG Credit Opportunities Fund for its 2,79% losses in 2010!

At the same time, in the Bloomberg list of top 100 richest hedge funds in the world the second place is occupied by a Russian hedge fund – Russian Prosperity, which made 195% in 2009.

Both the general decline and growing risks in the Western markets contribute to keeping Western institutions invested in Russian hedge funds.

They see potentially high benefits in Russia, and they know they will find qualified professional teams to manage their money in many of the local hedge funds.

Usually, these teams were assembled by hedge fund managers working in leading international firms such as Renaissance Capital, Credit Suisse, McKinsey, AIG and others.

Last but not least – those investors that know why and how hedge funds benefitted from the South Asian financial boom can link that situation to the state of affairs in Russia right now.

I am talking of the same market “inefficiencies”: rich intellectual potential on the one hand, and Russia’s membership in the WTO and willingness of the Russian government to establish a World Financial Centre in Russia on the other hand.

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