Alternative Investments in Russia and the CIS Valuable addition or dangerous addiction? Hedge fund manager selection for private wealth portfolio Olga Kokareva Head of.

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Transcript Alternative Investments in Russia and the CIS Valuable addition or dangerous addiction? Hedge fund manager selection for private wealth portfolio Olga Kokareva Head of.

Slide 1

Alternative Investments in Russia and the CIS

Valuable addition or dangerous addiction?
Hedge fund manager selection for private wealth portfolio

Olga Kokareva
Head of Marketing and Investor Relations
Da Vinci CIS Opportunities Fund
[email protected]

Private Banking in Russia & CIS, 10-11 March 2011

HNWIs regain their risk appetite
Breakdown of HNWI Financial Assets, 2006-2011F
100%
10%

9%

7%

14%

18%

6%

8%

18%

14%

90%
80%

24%
13%

70%

17%

17%

Real estate

21%

60%

14%

Cash/deposits
31%

50%
27%

40%

Alternative investments

21%

Fixed income

31%
29%

Equities
30%
20%
31%

33%

2006

2007

25%

10%

29%

35%

0%
2008

2009

2011F

*Source: Capgemini/Merrill Lynch Financial Advisor Surveys 2007, 2008, 2009, 2010

2

Return enhancement + diversification
Adding hedge funds to the portfolio of traditional investments improves efficient frontier

Traditional and alternative investments

• Reduction of portfolio volatility

Expected return

• Low correlation with traditional investment strategies
Traditional investments only

• Absolute return
• Profitability in different economic climates
• Diversification

Expected volatility

For illustrative purposes only, not drawn to scale.

*Demystifying the Role of Alternative Investments in a Diversified Investment Portfolio
By Baird’s Advisory Services Research

3

Skill-based strategies
Traditional assets

Hedge funds
Median return of managers by strategy

Annualized return

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

4.1%
7.2%

Annualized return

Median return of managers by asset class
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

Inter-quartile range of managers within asset class

Inter-quartile range of managers within strategy
10%

8%

6%
5%
4%
3%
2%
1%
0%

4.1%

Annualized return

Annualized return

7%

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

* “Are Funds of Funds simply multi-strategy managers with extra fees?” by G. Reddy, P. Brady, K. Patel. Based on statistical data for 6 years ending in march 2007

4

Formal approach is not enough anymore

5

Client is concerned about

Return OF
ON investments
Based on 100 hedge funds failures investigations*:
50% failures were caused by operational risks

38% investment risk
6% business risk
6% due to multiple problems

* Study by Capco partners Chris Kundro and Stuart Feffer

6

from private banker’s perspective
HNW investors are not loyal to firms or banks – they are loyal to advisors

In-house products

lack of diversification

limited universe of
instruments to chose from

Third-party products

lack of transparency

In-house due diligence

7

The reverse of selection process cornerstones

Fund size

too-much-money problem
capacity limits

Fund track record

vs fund manager track record

Big name

talent retention problem
= less operational risk
affiliated infrastructure risk

8

Highly underestimated source of potential risk:

Manager’s ego

How does the manager deal with success?

How does the manager react when things are going wrong?
Does the manager respect the market?

9

Hedge fund selection is about seeking stars not stamps

Advisor’s choice decides if adding a hedge fund to the client’s portfolio
turns it into a poisoned cocktail or optimal mix of diversified investments.

10

Da Vinci CIS Opportunities Fund
A fundamental multi-strategy hedge-fund focused on Russia and the CIS

11

Investment Philosophy and Fund Edge
Investment Philosophy

Da Vinci Hedge Fund Edge

 Respect the Market
 Information is asymmetric

 With western and local presence, we know
both outside perception and domestic reality.

 Inefficiencies create opportunities

 Excellent knowledge of Russian and CIS
markets and practices as well as flexible
mandate allows us to identify those
inefficiencies quickly and exploit them.

 Look for upside, protect downside

 Using derivatives allows us to enhance
return while limiting downside risk.

12

Track Record in the CIS
Dmitry Malykhin’s Track Record as the Head of Moscow Representative Office and later as the Head of Research and Trading of Wermuth Asset Management
GmbH. Wermuth Asset Management GmbH (WAM) is the Investment Adviser of the Greater Europe Fund Limited. Dmitry Malykhin’s period (1999 – 2006).
Net Return, MTD

Jan

Feb

1998

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,00%

0,10%

-3,87%

-1,26%

0,63%

-5,32%

6,08%

1,44%

7,34%

0,95%

5,56%

1999

0,43%

-4,97%

6,13%

5,89%

-4,03%

6,20%

2,79%

1,89%

17,19%

15,88%

2,78%

12,44%

79,68%

2000

-4,66%

10,47%

5,21%

-6,83%

-4,83%

-1,09%

2,89%

6,22%

-9,31%

-1,72%

-10,56%

2,02%

-13,62%

2001

8,69%

1,28%

-1,44%

2,51%

5,79%

6,24%

-1,47%

-0,74%

-7,04%

5,10%

7,14%

6,25%

35,97%

2002

5,64%

7,41%

4,72%

11,29%

1,15%

-9,91%

-6,88%

1,65%

-2,70%

6,47%

4,57%

-0,27%

23,23%

2003

-0,31%

9,52%

-3,64%

9,20%

7,38%

-0,19%

-0,28%

7,88%

12,93%

-1,10%

0,29%

4,87%

55,60%

2004

3,85%

7,49%

3,30%

-5,41%

-0,84%

1,16%

0,95%

0,76%

7,52%

3,77%

1,71%

0,69%

27,17%

2005

2,19%

14,36%

-6,65%

0,07%

-2,03%

0,00%

7,29%

12,65%

3,91%

-6,37%

4,99%

9,63%

44,76%

2006

20,57%

4,33%

-0,11%

12,63%

-7,88%

-3,75%

0,07%

1,81%

-7,78%

2,81%

6,65%

3,53%

33,83%

Dmitry Malykhin’s Track Record (2008 performance is audited) as an Investment Adviser of Worldcrest Limited (2008 - 2009). No performance or management
fees have been charged until Nov 2009. Worldcrest was merged with Da Vinci CIS Opportunities Fund in Nov 2009.
Net Return, MTD

Jan

2008
2009

-2,3%

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,2%

3,6%

3,1%

2,9%

-1,8%

0,9%

-3,6%

18,7%

0,1%

8,1%

-2,4%

31,87%

0,9%

17,6%

26,1%

25,7%

-6,5%

5,3%

10,9%

23,6%

7,0%

165,35%

Dmitry Malykhin’s Track Record as the Chief Investment Adviser of Da Vinci CIS Opportunities Fund (from the Fund inception in March 2009). 2009
performance is audited
Net Return, MTD

Jan

Feb

2009

2010

7.45%

-1,97%

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

6,85%

15,97%

15,61%

0,23%

3,97%

-5,71%

8,09%

6,84%

-0,67%

3,98%

88,2%

11.76%

0.68%

-6.96%

-1.38%

7.12%

-3.41%

3.64%

4.1%

1.97%

6.5%

31.7%

13


Slide 2

Alternative Investments in Russia and the CIS

Valuable addition or dangerous addiction?
Hedge fund manager selection for private wealth portfolio

Olga Kokareva
Head of Marketing and Investor Relations
Da Vinci CIS Opportunities Fund
[email protected]

Private Banking in Russia & CIS, 10-11 March 2011

HNWIs regain their risk appetite
Breakdown of HNWI Financial Assets, 2006-2011F
100%
10%

9%

7%

14%

18%

6%

8%

18%

14%

90%
80%

24%
13%

70%

17%

17%

Real estate

21%

60%

14%

Cash/deposits
31%

50%
27%

40%

Alternative investments

21%

Fixed income

31%
29%

Equities
30%
20%
31%

33%

2006

2007

25%

10%

29%

35%

0%
2008

2009

2011F

*Source: Capgemini/Merrill Lynch Financial Advisor Surveys 2007, 2008, 2009, 2010

2

Return enhancement + diversification
Adding hedge funds to the portfolio of traditional investments improves efficient frontier

Traditional and alternative investments

• Reduction of portfolio volatility

Expected return

• Low correlation with traditional investment strategies
Traditional investments only

• Absolute return
• Profitability in different economic climates
• Diversification

Expected volatility

For illustrative purposes only, not drawn to scale.

*Demystifying the Role of Alternative Investments in a Diversified Investment Portfolio
By Baird’s Advisory Services Research

3

Skill-based strategies
Traditional assets

Hedge funds
Median return of managers by strategy

Annualized return

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

4.1%
7.2%

Annualized return

Median return of managers by asset class
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

Inter-quartile range of managers within asset class

Inter-quartile range of managers within strategy
10%

8%

6%
5%
4%
3%
2%
1%
0%

4.1%

Annualized return

Annualized return

7%

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

* “Are Funds of Funds simply multi-strategy managers with extra fees?” by G. Reddy, P. Brady, K. Patel. Based on statistical data for 6 years ending in march 2007

4

Formal approach is not enough anymore

5

Client is concerned about

Return OF
ON investments
Based on 100 hedge funds failures investigations*:
50% failures were caused by operational risks

38% investment risk
6% business risk
6% due to multiple problems

* Study by Capco partners Chris Kundro and Stuart Feffer

6

from private banker’s perspective
HNW investors are not loyal to firms or banks – they are loyal to advisors

In-house products

lack of diversification

limited universe of
instruments to chose from

Third-party products

lack of transparency

In-house due diligence

7

The reverse of selection process cornerstones

Fund size

too-much-money problem
capacity limits

Fund track record

vs fund manager track record

Big name

talent retention problem
= less operational risk
affiliated infrastructure risk

8

Highly underestimated source of potential risk:

Manager’s ego

How does the manager deal with success?

How does the manager react when things are going wrong?
Does the manager respect the market?

9

Hedge fund selection is about seeking stars not stamps

Advisor’s choice decides if adding a hedge fund to the client’s portfolio
turns it into a poisoned cocktail or optimal mix of diversified investments.

10

Da Vinci CIS Opportunities Fund
A fundamental multi-strategy hedge-fund focused on Russia and the CIS

11

Investment Philosophy and Fund Edge
Investment Philosophy

Da Vinci Hedge Fund Edge

 Respect the Market
 Information is asymmetric

 With western and local presence, we know
both outside perception and domestic reality.

 Inefficiencies create opportunities

 Excellent knowledge of Russian and CIS
markets and practices as well as flexible
mandate allows us to identify those
inefficiencies quickly and exploit them.

 Look for upside, protect downside

 Using derivatives allows us to enhance
return while limiting downside risk.

12

Track Record in the CIS
Dmitry Malykhin’s Track Record as the Head of Moscow Representative Office and later as the Head of Research and Trading of Wermuth Asset Management
GmbH. Wermuth Asset Management GmbH (WAM) is the Investment Adviser of the Greater Europe Fund Limited. Dmitry Malykhin’s period (1999 – 2006).
Net Return, MTD

Jan

Feb

1998

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,00%

0,10%

-3,87%

-1,26%

0,63%

-5,32%

6,08%

1,44%

7,34%

0,95%

5,56%

1999

0,43%

-4,97%

6,13%

5,89%

-4,03%

6,20%

2,79%

1,89%

17,19%

15,88%

2,78%

12,44%

79,68%

2000

-4,66%

10,47%

5,21%

-6,83%

-4,83%

-1,09%

2,89%

6,22%

-9,31%

-1,72%

-10,56%

2,02%

-13,62%

2001

8,69%

1,28%

-1,44%

2,51%

5,79%

6,24%

-1,47%

-0,74%

-7,04%

5,10%

7,14%

6,25%

35,97%

2002

5,64%

7,41%

4,72%

11,29%

1,15%

-9,91%

-6,88%

1,65%

-2,70%

6,47%

4,57%

-0,27%

23,23%

2003

-0,31%

9,52%

-3,64%

9,20%

7,38%

-0,19%

-0,28%

7,88%

12,93%

-1,10%

0,29%

4,87%

55,60%

2004

3,85%

7,49%

3,30%

-5,41%

-0,84%

1,16%

0,95%

0,76%

7,52%

3,77%

1,71%

0,69%

27,17%

2005

2,19%

14,36%

-6,65%

0,07%

-2,03%

0,00%

7,29%

12,65%

3,91%

-6,37%

4,99%

9,63%

44,76%

2006

20,57%

4,33%

-0,11%

12,63%

-7,88%

-3,75%

0,07%

1,81%

-7,78%

2,81%

6,65%

3,53%

33,83%

Dmitry Malykhin’s Track Record (2008 performance is audited) as an Investment Adviser of Worldcrest Limited (2008 - 2009). No performance or management
fees have been charged until Nov 2009. Worldcrest was merged with Da Vinci CIS Opportunities Fund in Nov 2009.
Net Return, MTD

Jan

2008
2009

-2,3%

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,2%

3,6%

3,1%

2,9%

-1,8%

0,9%

-3,6%

18,7%

0,1%

8,1%

-2,4%

31,87%

0,9%

17,6%

26,1%

25,7%

-6,5%

5,3%

10,9%

23,6%

7,0%

165,35%

Dmitry Malykhin’s Track Record as the Chief Investment Adviser of Da Vinci CIS Opportunities Fund (from the Fund inception in March 2009). 2009
performance is audited
Net Return, MTD

Jan

Feb

2009

2010

7.45%

-1,97%

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

6,85%

15,97%

15,61%

0,23%

3,97%

-5,71%

8,09%

6,84%

-0,67%

3,98%

88,2%

11.76%

0.68%

-6.96%

-1.38%

7.12%

-3.41%

3.64%

4.1%

1.97%

6.5%

31.7%

13


Slide 3

Alternative Investments in Russia and the CIS

Valuable addition or dangerous addiction?
Hedge fund manager selection for private wealth portfolio

Olga Kokareva
Head of Marketing and Investor Relations
Da Vinci CIS Opportunities Fund
[email protected]

Private Banking in Russia & CIS, 10-11 March 2011

HNWIs regain their risk appetite
Breakdown of HNWI Financial Assets, 2006-2011F
100%
10%

9%

7%

14%

18%

6%

8%

18%

14%

90%
80%

24%
13%

70%

17%

17%

Real estate

21%

60%

14%

Cash/deposits
31%

50%
27%

40%

Alternative investments

21%

Fixed income

31%
29%

Equities
30%
20%
31%

33%

2006

2007

25%

10%

29%

35%

0%
2008

2009

2011F

*Source: Capgemini/Merrill Lynch Financial Advisor Surveys 2007, 2008, 2009, 2010

2

Return enhancement + diversification
Adding hedge funds to the portfolio of traditional investments improves efficient frontier

Traditional and alternative investments

• Reduction of portfolio volatility

Expected return

• Low correlation with traditional investment strategies
Traditional investments only

• Absolute return
• Profitability in different economic climates
• Diversification

Expected volatility

For illustrative purposes only, not drawn to scale.

*Demystifying the Role of Alternative Investments in a Diversified Investment Portfolio
By Baird’s Advisory Services Research

3

Skill-based strategies
Traditional assets

Hedge funds
Median return of managers by strategy

Annualized return

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

4.1%
7.2%

Annualized return

Median return of managers by asset class
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

Inter-quartile range of managers within asset class

Inter-quartile range of managers within strategy
10%

8%

6%
5%
4%
3%
2%
1%
0%

4.1%

Annualized return

Annualized return

7%

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

* “Are Funds of Funds simply multi-strategy managers with extra fees?” by G. Reddy, P. Brady, K. Patel. Based on statistical data for 6 years ending in march 2007

4

Formal approach is not enough anymore

5

Client is concerned about

Return OF
ON investments
Based on 100 hedge funds failures investigations*:
50% failures were caused by operational risks

38% investment risk
6% business risk
6% due to multiple problems

* Study by Capco partners Chris Kundro and Stuart Feffer

6

from private banker’s perspective
HNW investors are not loyal to firms or banks – they are loyal to advisors

In-house products

lack of diversification

limited universe of
instruments to chose from

Third-party products

lack of transparency

In-house due diligence

7

The reverse of selection process cornerstones

Fund size

too-much-money problem
capacity limits

Fund track record

vs fund manager track record

Big name

talent retention problem
= less operational risk
affiliated infrastructure risk

8

Highly underestimated source of potential risk:

Manager’s ego

How does the manager deal with success?

How does the manager react when things are going wrong?
Does the manager respect the market?

9

Hedge fund selection is about seeking stars not stamps

Advisor’s choice decides if adding a hedge fund to the client’s portfolio
turns it into a poisoned cocktail or optimal mix of diversified investments.

10

Da Vinci CIS Opportunities Fund
A fundamental multi-strategy hedge-fund focused on Russia and the CIS

11

Investment Philosophy and Fund Edge
Investment Philosophy

Da Vinci Hedge Fund Edge

 Respect the Market
 Information is asymmetric

 With western and local presence, we know
both outside perception and domestic reality.

 Inefficiencies create opportunities

 Excellent knowledge of Russian and CIS
markets and practices as well as flexible
mandate allows us to identify those
inefficiencies quickly and exploit them.

 Look for upside, protect downside

 Using derivatives allows us to enhance
return while limiting downside risk.

12

Track Record in the CIS
Dmitry Malykhin’s Track Record as the Head of Moscow Representative Office and later as the Head of Research and Trading of Wermuth Asset Management
GmbH. Wermuth Asset Management GmbH (WAM) is the Investment Adviser of the Greater Europe Fund Limited. Dmitry Malykhin’s period (1999 – 2006).
Net Return, MTD

Jan

Feb

1998

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,00%

0,10%

-3,87%

-1,26%

0,63%

-5,32%

6,08%

1,44%

7,34%

0,95%

5,56%

1999

0,43%

-4,97%

6,13%

5,89%

-4,03%

6,20%

2,79%

1,89%

17,19%

15,88%

2,78%

12,44%

79,68%

2000

-4,66%

10,47%

5,21%

-6,83%

-4,83%

-1,09%

2,89%

6,22%

-9,31%

-1,72%

-10,56%

2,02%

-13,62%

2001

8,69%

1,28%

-1,44%

2,51%

5,79%

6,24%

-1,47%

-0,74%

-7,04%

5,10%

7,14%

6,25%

35,97%

2002

5,64%

7,41%

4,72%

11,29%

1,15%

-9,91%

-6,88%

1,65%

-2,70%

6,47%

4,57%

-0,27%

23,23%

2003

-0,31%

9,52%

-3,64%

9,20%

7,38%

-0,19%

-0,28%

7,88%

12,93%

-1,10%

0,29%

4,87%

55,60%

2004

3,85%

7,49%

3,30%

-5,41%

-0,84%

1,16%

0,95%

0,76%

7,52%

3,77%

1,71%

0,69%

27,17%

2005

2,19%

14,36%

-6,65%

0,07%

-2,03%

0,00%

7,29%

12,65%

3,91%

-6,37%

4,99%

9,63%

44,76%

2006

20,57%

4,33%

-0,11%

12,63%

-7,88%

-3,75%

0,07%

1,81%

-7,78%

2,81%

6,65%

3,53%

33,83%

Dmitry Malykhin’s Track Record (2008 performance is audited) as an Investment Adviser of Worldcrest Limited (2008 - 2009). No performance or management
fees have been charged until Nov 2009. Worldcrest was merged with Da Vinci CIS Opportunities Fund in Nov 2009.
Net Return, MTD

Jan

2008
2009

-2,3%

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,2%

3,6%

3,1%

2,9%

-1,8%

0,9%

-3,6%

18,7%

0,1%

8,1%

-2,4%

31,87%

0,9%

17,6%

26,1%

25,7%

-6,5%

5,3%

10,9%

23,6%

7,0%

165,35%

Dmitry Malykhin’s Track Record as the Chief Investment Adviser of Da Vinci CIS Opportunities Fund (from the Fund inception in March 2009). 2009
performance is audited
Net Return, MTD

Jan

Feb

2009

2010

7.45%

-1,97%

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

6,85%

15,97%

15,61%

0,23%

3,97%

-5,71%

8,09%

6,84%

-0,67%

3,98%

88,2%

11.76%

0.68%

-6.96%

-1.38%

7.12%

-3.41%

3.64%

4.1%

1.97%

6.5%

31.7%

13


Slide 4

Alternative Investments in Russia and the CIS

Valuable addition or dangerous addiction?
Hedge fund manager selection for private wealth portfolio

Olga Kokareva
Head of Marketing and Investor Relations
Da Vinci CIS Opportunities Fund
[email protected]

Private Banking in Russia & CIS, 10-11 March 2011

HNWIs regain their risk appetite
Breakdown of HNWI Financial Assets, 2006-2011F
100%
10%

9%

7%

14%

18%

6%

8%

18%

14%

90%
80%

24%
13%

70%

17%

17%

Real estate

21%

60%

14%

Cash/deposits
31%

50%
27%

40%

Alternative investments

21%

Fixed income

31%
29%

Equities
30%
20%
31%

33%

2006

2007

25%

10%

29%

35%

0%
2008

2009

2011F

*Source: Capgemini/Merrill Lynch Financial Advisor Surveys 2007, 2008, 2009, 2010

2

Return enhancement + diversification
Adding hedge funds to the portfolio of traditional investments improves efficient frontier

Traditional and alternative investments

• Reduction of portfolio volatility

Expected return

• Low correlation with traditional investment strategies
Traditional investments only

• Absolute return
• Profitability in different economic climates
• Diversification

Expected volatility

For illustrative purposes only, not drawn to scale.

*Demystifying the Role of Alternative Investments in a Diversified Investment Portfolio
By Baird’s Advisory Services Research

3

Skill-based strategies
Traditional assets

Hedge funds
Median return of managers by strategy

Annualized return

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

4.1%
7.2%

Annualized return

Median return of managers by asset class
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

Inter-quartile range of managers within asset class

Inter-quartile range of managers within strategy
10%

8%

6%
5%
4%
3%
2%
1%
0%

4.1%

Annualized return

Annualized return

7%

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

* “Are Funds of Funds simply multi-strategy managers with extra fees?” by G. Reddy, P. Brady, K. Patel. Based on statistical data for 6 years ending in march 2007

4

Formal approach is not enough anymore

5

Client is concerned about

Return OF
ON investments
Based on 100 hedge funds failures investigations*:
50% failures were caused by operational risks

38% investment risk
6% business risk
6% due to multiple problems

* Study by Capco partners Chris Kundro and Stuart Feffer

6

from private banker’s perspective
HNW investors are not loyal to firms or banks – they are loyal to advisors

In-house products

lack of diversification

limited universe of
instruments to chose from

Third-party products

lack of transparency

In-house due diligence

7

The reverse of selection process cornerstones

Fund size

too-much-money problem
capacity limits

Fund track record

vs fund manager track record

Big name

talent retention problem
= less operational risk
affiliated infrastructure risk

8

Highly underestimated source of potential risk:

Manager’s ego

How does the manager deal with success?

How does the manager react when things are going wrong?
Does the manager respect the market?

9

Hedge fund selection is about seeking stars not stamps

Advisor’s choice decides if adding a hedge fund to the client’s portfolio
turns it into a poisoned cocktail or optimal mix of diversified investments.

10

Da Vinci CIS Opportunities Fund
A fundamental multi-strategy hedge-fund focused on Russia and the CIS

11

Investment Philosophy and Fund Edge
Investment Philosophy

Da Vinci Hedge Fund Edge

 Respect the Market
 Information is asymmetric

 With western and local presence, we know
both outside perception and domestic reality.

 Inefficiencies create opportunities

 Excellent knowledge of Russian and CIS
markets and practices as well as flexible
mandate allows us to identify those
inefficiencies quickly and exploit them.

 Look for upside, protect downside

 Using derivatives allows us to enhance
return while limiting downside risk.

12

Track Record in the CIS
Dmitry Malykhin’s Track Record as the Head of Moscow Representative Office and later as the Head of Research and Trading of Wermuth Asset Management
GmbH. Wermuth Asset Management GmbH (WAM) is the Investment Adviser of the Greater Europe Fund Limited. Dmitry Malykhin’s period (1999 – 2006).
Net Return, MTD

Jan

Feb

1998

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,00%

0,10%

-3,87%

-1,26%

0,63%

-5,32%

6,08%

1,44%

7,34%

0,95%

5,56%

1999

0,43%

-4,97%

6,13%

5,89%

-4,03%

6,20%

2,79%

1,89%

17,19%

15,88%

2,78%

12,44%

79,68%

2000

-4,66%

10,47%

5,21%

-6,83%

-4,83%

-1,09%

2,89%

6,22%

-9,31%

-1,72%

-10,56%

2,02%

-13,62%

2001

8,69%

1,28%

-1,44%

2,51%

5,79%

6,24%

-1,47%

-0,74%

-7,04%

5,10%

7,14%

6,25%

35,97%

2002

5,64%

7,41%

4,72%

11,29%

1,15%

-9,91%

-6,88%

1,65%

-2,70%

6,47%

4,57%

-0,27%

23,23%

2003

-0,31%

9,52%

-3,64%

9,20%

7,38%

-0,19%

-0,28%

7,88%

12,93%

-1,10%

0,29%

4,87%

55,60%

2004

3,85%

7,49%

3,30%

-5,41%

-0,84%

1,16%

0,95%

0,76%

7,52%

3,77%

1,71%

0,69%

27,17%

2005

2,19%

14,36%

-6,65%

0,07%

-2,03%

0,00%

7,29%

12,65%

3,91%

-6,37%

4,99%

9,63%

44,76%

2006

20,57%

4,33%

-0,11%

12,63%

-7,88%

-3,75%

0,07%

1,81%

-7,78%

2,81%

6,65%

3,53%

33,83%

Dmitry Malykhin’s Track Record (2008 performance is audited) as an Investment Adviser of Worldcrest Limited (2008 - 2009). No performance or management
fees have been charged until Nov 2009. Worldcrest was merged with Da Vinci CIS Opportunities Fund in Nov 2009.
Net Return, MTD

Jan

2008
2009

-2,3%

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,2%

3,6%

3,1%

2,9%

-1,8%

0,9%

-3,6%

18,7%

0,1%

8,1%

-2,4%

31,87%

0,9%

17,6%

26,1%

25,7%

-6,5%

5,3%

10,9%

23,6%

7,0%

165,35%

Dmitry Malykhin’s Track Record as the Chief Investment Adviser of Da Vinci CIS Opportunities Fund (from the Fund inception in March 2009). 2009
performance is audited
Net Return, MTD

Jan

Feb

2009

2010

7.45%

-1,97%

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

6,85%

15,97%

15,61%

0,23%

3,97%

-5,71%

8,09%

6,84%

-0,67%

3,98%

88,2%

11.76%

0.68%

-6.96%

-1.38%

7.12%

-3.41%

3.64%

4.1%

1.97%

6.5%

31.7%

13


Slide 5

Alternative Investments in Russia and the CIS

Valuable addition or dangerous addiction?
Hedge fund manager selection for private wealth portfolio

Olga Kokareva
Head of Marketing and Investor Relations
Da Vinci CIS Opportunities Fund
[email protected]

Private Banking in Russia & CIS, 10-11 March 2011

HNWIs regain their risk appetite
Breakdown of HNWI Financial Assets, 2006-2011F
100%
10%

9%

7%

14%

18%

6%

8%

18%

14%

90%
80%

24%
13%

70%

17%

17%

Real estate

21%

60%

14%

Cash/deposits
31%

50%
27%

40%

Alternative investments

21%

Fixed income

31%
29%

Equities
30%
20%
31%

33%

2006

2007

25%

10%

29%

35%

0%
2008

2009

2011F

*Source: Capgemini/Merrill Lynch Financial Advisor Surveys 2007, 2008, 2009, 2010

2

Return enhancement + diversification
Adding hedge funds to the portfolio of traditional investments improves efficient frontier

Traditional and alternative investments

• Reduction of portfolio volatility

Expected return

• Low correlation with traditional investment strategies
Traditional investments only

• Absolute return
• Profitability in different economic climates
• Diversification

Expected volatility

For illustrative purposes only, not drawn to scale.

*Demystifying the Role of Alternative Investments in a Diversified Investment Portfolio
By Baird’s Advisory Services Research

3

Skill-based strategies
Traditional assets

Hedge funds
Median return of managers by strategy

Annualized return

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

4.1%
7.2%

Annualized return

Median return of managers by asset class
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

Inter-quartile range of managers within asset class

Inter-quartile range of managers within strategy
10%

8%

6%
5%
4%
3%
2%
1%
0%

4.1%

Annualized return

Annualized return

7%

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

* “Are Funds of Funds simply multi-strategy managers with extra fees?” by G. Reddy, P. Brady, K. Patel. Based on statistical data for 6 years ending in march 2007

4

Formal approach is not enough anymore

5

Client is concerned about

Return OF
ON investments
Based on 100 hedge funds failures investigations*:
50% failures were caused by operational risks

38% investment risk
6% business risk
6% due to multiple problems

* Study by Capco partners Chris Kundro and Stuart Feffer

6

from private banker’s perspective
HNW investors are not loyal to firms or banks – they are loyal to advisors

In-house products

lack of diversification

limited universe of
instruments to chose from

Third-party products

lack of transparency

In-house due diligence

7

The reverse of selection process cornerstones

Fund size

too-much-money problem
capacity limits

Fund track record

vs fund manager track record

Big name

talent retention problem
= less operational risk
affiliated infrastructure risk

8

Highly underestimated source of potential risk:

Manager’s ego

How does the manager deal with success?

How does the manager react when things are going wrong?
Does the manager respect the market?

9

Hedge fund selection is about seeking stars not stamps

Advisor’s choice decides if adding a hedge fund to the client’s portfolio
turns it into a poisoned cocktail or optimal mix of diversified investments.

10

Da Vinci CIS Opportunities Fund
A fundamental multi-strategy hedge-fund focused on Russia and the CIS

11

Investment Philosophy and Fund Edge
Investment Philosophy

Da Vinci Hedge Fund Edge

 Respect the Market
 Information is asymmetric

 With western and local presence, we know
both outside perception and domestic reality.

 Inefficiencies create opportunities

 Excellent knowledge of Russian and CIS
markets and practices as well as flexible
mandate allows us to identify those
inefficiencies quickly and exploit them.

 Look for upside, protect downside

 Using derivatives allows us to enhance
return while limiting downside risk.

12

Track Record in the CIS
Dmitry Malykhin’s Track Record as the Head of Moscow Representative Office and later as the Head of Research and Trading of Wermuth Asset Management
GmbH. Wermuth Asset Management GmbH (WAM) is the Investment Adviser of the Greater Europe Fund Limited. Dmitry Malykhin’s period (1999 – 2006).
Net Return, MTD

Jan

Feb

1998

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,00%

0,10%

-3,87%

-1,26%

0,63%

-5,32%

6,08%

1,44%

7,34%

0,95%

5,56%

1999

0,43%

-4,97%

6,13%

5,89%

-4,03%

6,20%

2,79%

1,89%

17,19%

15,88%

2,78%

12,44%

79,68%

2000

-4,66%

10,47%

5,21%

-6,83%

-4,83%

-1,09%

2,89%

6,22%

-9,31%

-1,72%

-10,56%

2,02%

-13,62%

2001

8,69%

1,28%

-1,44%

2,51%

5,79%

6,24%

-1,47%

-0,74%

-7,04%

5,10%

7,14%

6,25%

35,97%

2002

5,64%

7,41%

4,72%

11,29%

1,15%

-9,91%

-6,88%

1,65%

-2,70%

6,47%

4,57%

-0,27%

23,23%

2003

-0,31%

9,52%

-3,64%

9,20%

7,38%

-0,19%

-0,28%

7,88%

12,93%

-1,10%

0,29%

4,87%

55,60%

2004

3,85%

7,49%

3,30%

-5,41%

-0,84%

1,16%

0,95%

0,76%

7,52%

3,77%

1,71%

0,69%

27,17%

2005

2,19%

14,36%

-6,65%

0,07%

-2,03%

0,00%

7,29%

12,65%

3,91%

-6,37%

4,99%

9,63%

44,76%

2006

20,57%

4,33%

-0,11%

12,63%

-7,88%

-3,75%

0,07%

1,81%

-7,78%

2,81%

6,65%

3,53%

33,83%

Dmitry Malykhin’s Track Record (2008 performance is audited) as an Investment Adviser of Worldcrest Limited (2008 - 2009). No performance or management
fees have been charged until Nov 2009. Worldcrest was merged with Da Vinci CIS Opportunities Fund in Nov 2009.
Net Return, MTD

Jan

2008
2009

-2,3%

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,2%

3,6%

3,1%

2,9%

-1,8%

0,9%

-3,6%

18,7%

0,1%

8,1%

-2,4%

31,87%

0,9%

17,6%

26,1%

25,7%

-6,5%

5,3%

10,9%

23,6%

7,0%

165,35%

Dmitry Malykhin’s Track Record as the Chief Investment Adviser of Da Vinci CIS Opportunities Fund (from the Fund inception in March 2009). 2009
performance is audited
Net Return, MTD

Jan

Feb

2009

2010

7.45%

-1,97%

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

6,85%

15,97%

15,61%

0,23%

3,97%

-5,71%

8,09%

6,84%

-0,67%

3,98%

88,2%

11.76%

0.68%

-6.96%

-1.38%

7.12%

-3.41%

3.64%

4.1%

1.97%

6.5%

31.7%

13


Slide 6

Alternative Investments in Russia and the CIS

Valuable addition or dangerous addiction?
Hedge fund manager selection for private wealth portfolio

Olga Kokareva
Head of Marketing and Investor Relations
Da Vinci CIS Opportunities Fund
[email protected]

Private Banking in Russia & CIS, 10-11 March 2011

HNWIs regain their risk appetite
Breakdown of HNWI Financial Assets, 2006-2011F
100%
10%

9%

7%

14%

18%

6%

8%

18%

14%

90%
80%

24%
13%

70%

17%

17%

Real estate

21%

60%

14%

Cash/deposits
31%

50%
27%

40%

Alternative investments

21%

Fixed income

31%
29%

Equities
30%
20%
31%

33%

2006

2007

25%

10%

29%

35%

0%
2008

2009

2011F

*Source: Capgemini/Merrill Lynch Financial Advisor Surveys 2007, 2008, 2009, 2010

2

Return enhancement + diversification
Adding hedge funds to the portfolio of traditional investments improves efficient frontier

Traditional and alternative investments

• Reduction of portfolio volatility

Expected return

• Low correlation with traditional investment strategies
Traditional investments only

• Absolute return
• Profitability in different economic climates
• Diversification

Expected volatility

For illustrative purposes only, not drawn to scale.

*Demystifying the Role of Alternative Investments in a Diversified Investment Portfolio
By Baird’s Advisory Services Research

3

Skill-based strategies
Traditional assets

Hedge funds
Median return of managers by strategy

Annualized return

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

4.1%
7.2%

Annualized return

Median return of managers by asset class
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

Inter-quartile range of managers within asset class

Inter-quartile range of managers within strategy
10%

8%

6%
5%
4%
3%
2%
1%
0%

4.1%

Annualized return

Annualized return

7%

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

* “Are Funds of Funds simply multi-strategy managers with extra fees?” by G. Reddy, P. Brady, K. Patel. Based on statistical data for 6 years ending in march 2007

4

Formal approach is not enough anymore

5

Client is concerned about

Return OF
ON investments
Based on 100 hedge funds failures investigations*:
50% failures were caused by operational risks

38% investment risk
6% business risk
6% due to multiple problems

* Study by Capco partners Chris Kundro and Stuart Feffer

6

from private banker’s perspective
HNW investors are not loyal to firms or banks – they are loyal to advisors

In-house products

lack of diversification

limited universe of
instruments to chose from

Third-party products

lack of transparency

In-house due diligence

7

The reverse of selection process cornerstones

Fund size

too-much-money problem
capacity limits

Fund track record

vs fund manager track record

Big name

talent retention problem
= less operational risk
affiliated infrastructure risk

8

Highly underestimated source of potential risk:

Manager’s ego

How does the manager deal with success?

How does the manager react when things are going wrong?
Does the manager respect the market?

9

Hedge fund selection is about seeking stars not stamps

Advisor’s choice decides if adding a hedge fund to the client’s portfolio
turns it into a poisoned cocktail or optimal mix of diversified investments.

10

Da Vinci CIS Opportunities Fund
A fundamental multi-strategy hedge-fund focused on Russia and the CIS

11

Investment Philosophy and Fund Edge
Investment Philosophy

Da Vinci Hedge Fund Edge

 Respect the Market
 Information is asymmetric

 With western and local presence, we know
both outside perception and domestic reality.

 Inefficiencies create opportunities

 Excellent knowledge of Russian and CIS
markets and practices as well as flexible
mandate allows us to identify those
inefficiencies quickly and exploit them.

 Look for upside, protect downside

 Using derivatives allows us to enhance
return while limiting downside risk.

12

Track Record in the CIS
Dmitry Malykhin’s Track Record as the Head of Moscow Representative Office and later as the Head of Research and Trading of Wermuth Asset Management
GmbH. Wermuth Asset Management GmbH (WAM) is the Investment Adviser of the Greater Europe Fund Limited. Dmitry Malykhin’s period (1999 – 2006).
Net Return, MTD

Jan

Feb

1998

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,00%

0,10%

-3,87%

-1,26%

0,63%

-5,32%

6,08%

1,44%

7,34%

0,95%

5,56%

1999

0,43%

-4,97%

6,13%

5,89%

-4,03%

6,20%

2,79%

1,89%

17,19%

15,88%

2,78%

12,44%

79,68%

2000

-4,66%

10,47%

5,21%

-6,83%

-4,83%

-1,09%

2,89%

6,22%

-9,31%

-1,72%

-10,56%

2,02%

-13,62%

2001

8,69%

1,28%

-1,44%

2,51%

5,79%

6,24%

-1,47%

-0,74%

-7,04%

5,10%

7,14%

6,25%

35,97%

2002

5,64%

7,41%

4,72%

11,29%

1,15%

-9,91%

-6,88%

1,65%

-2,70%

6,47%

4,57%

-0,27%

23,23%

2003

-0,31%

9,52%

-3,64%

9,20%

7,38%

-0,19%

-0,28%

7,88%

12,93%

-1,10%

0,29%

4,87%

55,60%

2004

3,85%

7,49%

3,30%

-5,41%

-0,84%

1,16%

0,95%

0,76%

7,52%

3,77%

1,71%

0,69%

27,17%

2005

2,19%

14,36%

-6,65%

0,07%

-2,03%

0,00%

7,29%

12,65%

3,91%

-6,37%

4,99%

9,63%

44,76%

2006

20,57%

4,33%

-0,11%

12,63%

-7,88%

-3,75%

0,07%

1,81%

-7,78%

2,81%

6,65%

3,53%

33,83%

Dmitry Malykhin’s Track Record (2008 performance is audited) as an Investment Adviser of Worldcrest Limited (2008 - 2009). No performance or management
fees have been charged until Nov 2009. Worldcrest was merged with Da Vinci CIS Opportunities Fund in Nov 2009.
Net Return, MTD

Jan

2008
2009

-2,3%

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,2%

3,6%

3,1%

2,9%

-1,8%

0,9%

-3,6%

18,7%

0,1%

8,1%

-2,4%

31,87%

0,9%

17,6%

26,1%

25,7%

-6,5%

5,3%

10,9%

23,6%

7,0%

165,35%

Dmitry Malykhin’s Track Record as the Chief Investment Adviser of Da Vinci CIS Opportunities Fund (from the Fund inception in March 2009). 2009
performance is audited
Net Return, MTD

Jan

Feb

2009

2010

7.45%

-1,97%

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

6,85%

15,97%

15,61%

0,23%

3,97%

-5,71%

8,09%

6,84%

-0,67%

3,98%

88,2%

11.76%

0.68%

-6.96%

-1.38%

7.12%

-3.41%

3.64%

4.1%

1.97%

6.5%

31.7%

13


Slide 7

Alternative Investments in Russia and the CIS

Valuable addition or dangerous addiction?
Hedge fund manager selection for private wealth portfolio

Olga Kokareva
Head of Marketing and Investor Relations
Da Vinci CIS Opportunities Fund
[email protected]

Private Banking in Russia & CIS, 10-11 March 2011

HNWIs regain their risk appetite
Breakdown of HNWI Financial Assets, 2006-2011F
100%
10%

9%

7%

14%

18%

6%

8%

18%

14%

90%
80%

24%
13%

70%

17%

17%

Real estate

21%

60%

14%

Cash/deposits
31%

50%
27%

40%

Alternative investments

21%

Fixed income

31%
29%

Equities
30%
20%
31%

33%

2006

2007

25%

10%

29%

35%

0%
2008

2009

2011F

*Source: Capgemini/Merrill Lynch Financial Advisor Surveys 2007, 2008, 2009, 2010

2

Return enhancement + diversification
Adding hedge funds to the portfolio of traditional investments improves efficient frontier

Traditional and alternative investments

• Reduction of portfolio volatility

Expected return

• Low correlation with traditional investment strategies
Traditional investments only

• Absolute return
• Profitability in different economic climates
• Diversification

Expected volatility

For illustrative purposes only, not drawn to scale.

*Demystifying the Role of Alternative Investments in a Diversified Investment Portfolio
By Baird’s Advisory Services Research

3

Skill-based strategies
Traditional assets

Hedge funds
Median return of managers by strategy

Annualized return

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

4.1%
7.2%

Annualized return

Median return of managers by asset class
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

Inter-quartile range of managers within asset class

Inter-quartile range of managers within strategy
10%

8%

6%
5%
4%
3%
2%
1%
0%

4.1%

Annualized return

Annualized return

7%

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

* “Are Funds of Funds simply multi-strategy managers with extra fees?” by G. Reddy, P. Brady, K. Patel. Based on statistical data for 6 years ending in march 2007

4

Formal approach is not enough anymore

5

Client is concerned about

Return OF
ON investments
Based on 100 hedge funds failures investigations*:
50% failures were caused by operational risks

38% investment risk
6% business risk
6% due to multiple problems

* Study by Capco partners Chris Kundro and Stuart Feffer

6

from private banker’s perspective
HNW investors are not loyal to firms or banks – they are loyal to advisors

In-house products

lack of diversification

limited universe of
instruments to chose from

Third-party products

lack of transparency

In-house due diligence

7

The reverse of selection process cornerstones

Fund size

too-much-money problem
capacity limits

Fund track record

vs fund manager track record

Big name

talent retention problem
= less operational risk
affiliated infrastructure risk

8

Highly underestimated source of potential risk:

Manager’s ego

How does the manager deal with success?

How does the manager react when things are going wrong?
Does the manager respect the market?

9

Hedge fund selection is about seeking stars not stamps

Advisor’s choice decides if adding a hedge fund to the client’s portfolio
turns it into a poisoned cocktail or optimal mix of diversified investments.

10

Da Vinci CIS Opportunities Fund
A fundamental multi-strategy hedge-fund focused on Russia and the CIS

11

Investment Philosophy and Fund Edge
Investment Philosophy

Da Vinci Hedge Fund Edge

 Respect the Market
 Information is asymmetric

 With western and local presence, we know
both outside perception and domestic reality.

 Inefficiencies create opportunities

 Excellent knowledge of Russian and CIS
markets and practices as well as flexible
mandate allows us to identify those
inefficiencies quickly and exploit them.

 Look for upside, protect downside

 Using derivatives allows us to enhance
return while limiting downside risk.

12

Track Record in the CIS
Dmitry Malykhin’s Track Record as the Head of Moscow Representative Office and later as the Head of Research and Trading of Wermuth Asset Management
GmbH. Wermuth Asset Management GmbH (WAM) is the Investment Adviser of the Greater Europe Fund Limited. Dmitry Malykhin’s period (1999 – 2006).
Net Return, MTD

Jan

Feb

1998

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,00%

0,10%

-3,87%

-1,26%

0,63%

-5,32%

6,08%

1,44%

7,34%

0,95%

5,56%

1999

0,43%

-4,97%

6,13%

5,89%

-4,03%

6,20%

2,79%

1,89%

17,19%

15,88%

2,78%

12,44%

79,68%

2000

-4,66%

10,47%

5,21%

-6,83%

-4,83%

-1,09%

2,89%

6,22%

-9,31%

-1,72%

-10,56%

2,02%

-13,62%

2001

8,69%

1,28%

-1,44%

2,51%

5,79%

6,24%

-1,47%

-0,74%

-7,04%

5,10%

7,14%

6,25%

35,97%

2002

5,64%

7,41%

4,72%

11,29%

1,15%

-9,91%

-6,88%

1,65%

-2,70%

6,47%

4,57%

-0,27%

23,23%

2003

-0,31%

9,52%

-3,64%

9,20%

7,38%

-0,19%

-0,28%

7,88%

12,93%

-1,10%

0,29%

4,87%

55,60%

2004

3,85%

7,49%

3,30%

-5,41%

-0,84%

1,16%

0,95%

0,76%

7,52%

3,77%

1,71%

0,69%

27,17%

2005

2,19%

14,36%

-6,65%

0,07%

-2,03%

0,00%

7,29%

12,65%

3,91%

-6,37%

4,99%

9,63%

44,76%

2006

20,57%

4,33%

-0,11%

12,63%

-7,88%

-3,75%

0,07%

1,81%

-7,78%

2,81%

6,65%

3,53%

33,83%

Dmitry Malykhin’s Track Record (2008 performance is audited) as an Investment Adviser of Worldcrest Limited (2008 - 2009). No performance or management
fees have been charged until Nov 2009. Worldcrest was merged with Da Vinci CIS Opportunities Fund in Nov 2009.
Net Return, MTD

Jan

2008
2009

-2,3%

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,2%

3,6%

3,1%

2,9%

-1,8%

0,9%

-3,6%

18,7%

0,1%

8,1%

-2,4%

31,87%

0,9%

17,6%

26,1%

25,7%

-6,5%

5,3%

10,9%

23,6%

7,0%

165,35%

Dmitry Malykhin’s Track Record as the Chief Investment Adviser of Da Vinci CIS Opportunities Fund (from the Fund inception in March 2009). 2009
performance is audited
Net Return, MTD

Jan

Feb

2009

2010

7.45%

-1,97%

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

6,85%

15,97%

15,61%

0,23%

3,97%

-5,71%

8,09%

6,84%

-0,67%

3,98%

88,2%

11.76%

0.68%

-6.96%

-1.38%

7.12%

-3.41%

3.64%

4.1%

1.97%

6.5%

31.7%

13


Slide 8

Alternative Investments in Russia and the CIS

Valuable addition or dangerous addiction?
Hedge fund manager selection for private wealth portfolio

Olga Kokareva
Head of Marketing and Investor Relations
Da Vinci CIS Opportunities Fund
[email protected]

Private Banking in Russia & CIS, 10-11 March 2011

HNWIs regain their risk appetite
Breakdown of HNWI Financial Assets, 2006-2011F
100%
10%

9%

7%

14%

18%

6%

8%

18%

14%

90%
80%

24%
13%

70%

17%

17%

Real estate

21%

60%

14%

Cash/deposits
31%

50%
27%

40%

Alternative investments

21%

Fixed income

31%
29%

Equities
30%
20%
31%

33%

2006

2007

25%

10%

29%

35%

0%
2008

2009

2011F

*Source: Capgemini/Merrill Lynch Financial Advisor Surveys 2007, 2008, 2009, 2010

2

Return enhancement + diversification
Adding hedge funds to the portfolio of traditional investments improves efficient frontier

Traditional and alternative investments

• Reduction of portfolio volatility

Expected return

• Low correlation with traditional investment strategies
Traditional investments only

• Absolute return
• Profitability in different economic climates
• Diversification

Expected volatility

For illustrative purposes only, not drawn to scale.

*Demystifying the Role of Alternative Investments in a Diversified Investment Portfolio
By Baird’s Advisory Services Research

3

Skill-based strategies
Traditional assets

Hedge funds
Median return of managers by strategy

Annualized return

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

4.1%
7.2%

Annualized return

Median return of managers by asset class
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

Inter-quartile range of managers within asset class

Inter-quartile range of managers within strategy
10%

8%

6%
5%
4%
3%
2%
1%
0%

4.1%

Annualized return

Annualized return

7%

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

* “Are Funds of Funds simply multi-strategy managers with extra fees?” by G. Reddy, P. Brady, K. Patel. Based on statistical data for 6 years ending in march 2007

4

Formal approach is not enough anymore

5

Client is concerned about

Return OF
ON investments
Based on 100 hedge funds failures investigations*:
50% failures were caused by operational risks

38% investment risk
6% business risk
6% due to multiple problems

* Study by Capco partners Chris Kundro and Stuart Feffer

6

from private banker’s perspective
HNW investors are not loyal to firms or banks – they are loyal to advisors

In-house products

lack of diversification

limited universe of
instruments to chose from

Third-party products

lack of transparency

In-house due diligence

7

The reverse of selection process cornerstones

Fund size

too-much-money problem
capacity limits

Fund track record

vs fund manager track record

Big name

talent retention problem
= less operational risk
affiliated infrastructure risk

8

Highly underestimated source of potential risk:

Manager’s ego

How does the manager deal with success?

How does the manager react when things are going wrong?
Does the manager respect the market?

9

Hedge fund selection is about seeking stars not stamps

Advisor’s choice decides if adding a hedge fund to the client’s portfolio
turns it into a poisoned cocktail or optimal mix of diversified investments.

10

Da Vinci CIS Opportunities Fund
A fundamental multi-strategy hedge-fund focused on Russia and the CIS

11

Investment Philosophy and Fund Edge
Investment Philosophy

Da Vinci Hedge Fund Edge

 Respect the Market
 Information is asymmetric

 With western and local presence, we know
both outside perception and domestic reality.

 Inefficiencies create opportunities

 Excellent knowledge of Russian and CIS
markets and practices as well as flexible
mandate allows us to identify those
inefficiencies quickly and exploit them.

 Look for upside, protect downside

 Using derivatives allows us to enhance
return while limiting downside risk.

12

Track Record in the CIS
Dmitry Malykhin’s Track Record as the Head of Moscow Representative Office and later as the Head of Research and Trading of Wermuth Asset Management
GmbH. Wermuth Asset Management GmbH (WAM) is the Investment Adviser of the Greater Europe Fund Limited. Dmitry Malykhin’s period (1999 – 2006).
Net Return, MTD

Jan

Feb

1998

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,00%

0,10%

-3,87%

-1,26%

0,63%

-5,32%

6,08%

1,44%

7,34%

0,95%

5,56%

1999

0,43%

-4,97%

6,13%

5,89%

-4,03%

6,20%

2,79%

1,89%

17,19%

15,88%

2,78%

12,44%

79,68%

2000

-4,66%

10,47%

5,21%

-6,83%

-4,83%

-1,09%

2,89%

6,22%

-9,31%

-1,72%

-10,56%

2,02%

-13,62%

2001

8,69%

1,28%

-1,44%

2,51%

5,79%

6,24%

-1,47%

-0,74%

-7,04%

5,10%

7,14%

6,25%

35,97%

2002

5,64%

7,41%

4,72%

11,29%

1,15%

-9,91%

-6,88%

1,65%

-2,70%

6,47%

4,57%

-0,27%

23,23%

2003

-0,31%

9,52%

-3,64%

9,20%

7,38%

-0,19%

-0,28%

7,88%

12,93%

-1,10%

0,29%

4,87%

55,60%

2004

3,85%

7,49%

3,30%

-5,41%

-0,84%

1,16%

0,95%

0,76%

7,52%

3,77%

1,71%

0,69%

27,17%

2005

2,19%

14,36%

-6,65%

0,07%

-2,03%

0,00%

7,29%

12,65%

3,91%

-6,37%

4,99%

9,63%

44,76%

2006

20,57%

4,33%

-0,11%

12,63%

-7,88%

-3,75%

0,07%

1,81%

-7,78%

2,81%

6,65%

3,53%

33,83%

Dmitry Malykhin’s Track Record (2008 performance is audited) as an Investment Adviser of Worldcrest Limited (2008 - 2009). No performance or management
fees have been charged until Nov 2009. Worldcrest was merged with Da Vinci CIS Opportunities Fund in Nov 2009.
Net Return, MTD

Jan

2008
2009

-2,3%

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,2%

3,6%

3,1%

2,9%

-1,8%

0,9%

-3,6%

18,7%

0,1%

8,1%

-2,4%

31,87%

0,9%

17,6%

26,1%

25,7%

-6,5%

5,3%

10,9%

23,6%

7,0%

165,35%

Dmitry Malykhin’s Track Record as the Chief Investment Adviser of Da Vinci CIS Opportunities Fund (from the Fund inception in March 2009). 2009
performance is audited
Net Return, MTD

Jan

Feb

2009

2010

7.45%

-1,97%

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

6,85%

15,97%

15,61%

0,23%

3,97%

-5,71%

8,09%

6,84%

-0,67%

3,98%

88,2%

11.76%

0.68%

-6.96%

-1.38%

7.12%

-3.41%

3.64%

4.1%

1.97%

6.5%

31.7%

13


Slide 9

Alternative Investments in Russia and the CIS

Valuable addition or dangerous addiction?
Hedge fund manager selection for private wealth portfolio

Olga Kokareva
Head of Marketing and Investor Relations
Da Vinci CIS Opportunities Fund
[email protected]

Private Banking in Russia & CIS, 10-11 March 2011

HNWIs regain their risk appetite
Breakdown of HNWI Financial Assets, 2006-2011F
100%
10%

9%

7%

14%

18%

6%

8%

18%

14%

90%
80%

24%
13%

70%

17%

17%

Real estate

21%

60%

14%

Cash/deposits
31%

50%
27%

40%

Alternative investments

21%

Fixed income

31%
29%

Equities
30%
20%
31%

33%

2006

2007

25%

10%

29%

35%

0%
2008

2009

2011F

*Source: Capgemini/Merrill Lynch Financial Advisor Surveys 2007, 2008, 2009, 2010

2

Return enhancement + diversification
Adding hedge funds to the portfolio of traditional investments improves efficient frontier

Traditional and alternative investments

• Reduction of portfolio volatility

Expected return

• Low correlation with traditional investment strategies
Traditional investments only

• Absolute return
• Profitability in different economic climates
• Diversification

Expected volatility

For illustrative purposes only, not drawn to scale.

*Demystifying the Role of Alternative Investments in a Diversified Investment Portfolio
By Baird’s Advisory Services Research

3

Skill-based strategies
Traditional assets

Hedge funds
Median return of managers by strategy

Annualized return

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

4.1%
7.2%

Annualized return

Median return of managers by asset class
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

Inter-quartile range of managers within asset class

Inter-quartile range of managers within strategy
10%

8%

6%
5%
4%
3%
2%
1%
0%

4.1%

Annualized return

Annualized return

7%

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

* “Are Funds of Funds simply multi-strategy managers with extra fees?” by G. Reddy, P. Brady, K. Patel. Based on statistical data for 6 years ending in march 2007

4

Formal approach is not enough anymore

5

Client is concerned about

Return OF
ON investments
Based on 100 hedge funds failures investigations*:
50% failures were caused by operational risks

38% investment risk
6% business risk
6% due to multiple problems

* Study by Capco partners Chris Kundro and Stuart Feffer

6

from private banker’s perspective
HNW investors are not loyal to firms or banks – they are loyal to advisors

In-house products

lack of diversification

limited universe of
instruments to chose from

Third-party products

lack of transparency

In-house due diligence

7

The reverse of selection process cornerstones

Fund size

too-much-money problem
capacity limits

Fund track record

vs fund manager track record

Big name

talent retention problem
= less operational risk
affiliated infrastructure risk

8

Highly underestimated source of potential risk:

Manager’s ego

How does the manager deal with success?

How does the manager react when things are going wrong?
Does the manager respect the market?

9

Hedge fund selection is about seeking stars not stamps

Advisor’s choice decides if adding a hedge fund to the client’s portfolio
turns it into a poisoned cocktail or optimal mix of diversified investments.

10

Da Vinci CIS Opportunities Fund
A fundamental multi-strategy hedge-fund focused on Russia and the CIS

11

Investment Philosophy and Fund Edge
Investment Philosophy

Da Vinci Hedge Fund Edge

 Respect the Market
 Information is asymmetric

 With western and local presence, we know
both outside perception and domestic reality.

 Inefficiencies create opportunities

 Excellent knowledge of Russian and CIS
markets and practices as well as flexible
mandate allows us to identify those
inefficiencies quickly and exploit them.

 Look for upside, protect downside

 Using derivatives allows us to enhance
return while limiting downside risk.

12

Track Record in the CIS
Dmitry Malykhin’s Track Record as the Head of Moscow Representative Office and later as the Head of Research and Trading of Wermuth Asset Management
GmbH. Wermuth Asset Management GmbH (WAM) is the Investment Adviser of the Greater Europe Fund Limited. Dmitry Malykhin’s period (1999 – 2006).
Net Return, MTD

Jan

Feb

1998

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,00%

0,10%

-3,87%

-1,26%

0,63%

-5,32%

6,08%

1,44%

7,34%

0,95%

5,56%

1999

0,43%

-4,97%

6,13%

5,89%

-4,03%

6,20%

2,79%

1,89%

17,19%

15,88%

2,78%

12,44%

79,68%

2000

-4,66%

10,47%

5,21%

-6,83%

-4,83%

-1,09%

2,89%

6,22%

-9,31%

-1,72%

-10,56%

2,02%

-13,62%

2001

8,69%

1,28%

-1,44%

2,51%

5,79%

6,24%

-1,47%

-0,74%

-7,04%

5,10%

7,14%

6,25%

35,97%

2002

5,64%

7,41%

4,72%

11,29%

1,15%

-9,91%

-6,88%

1,65%

-2,70%

6,47%

4,57%

-0,27%

23,23%

2003

-0,31%

9,52%

-3,64%

9,20%

7,38%

-0,19%

-0,28%

7,88%

12,93%

-1,10%

0,29%

4,87%

55,60%

2004

3,85%

7,49%

3,30%

-5,41%

-0,84%

1,16%

0,95%

0,76%

7,52%

3,77%

1,71%

0,69%

27,17%

2005

2,19%

14,36%

-6,65%

0,07%

-2,03%

0,00%

7,29%

12,65%

3,91%

-6,37%

4,99%

9,63%

44,76%

2006

20,57%

4,33%

-0,11%

12,63%

-7,88%

-3,75%

0,07%

1,81%

-7,78%

2,81%

6,65%

3,53%

33,83%

Dmitry Malykhin’s Track Record (2008 performance is audited) as an Investment Adviser of Worldcrest Limited (2008 - 2009). No performance or management
fees have been charged until Nov 2009. Worldcrest was merged with Da Vinci CIS Opportunities Fund in Nov 2009.
Net Return, MTD

Jan

2008
2009

-2,3%

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,2%

3,6%

3,1%

2,9%

-1,8%

0,9%

-3,6%

18,7%

0,1%

8,1%

-2,4%

31,87%

0,9%

17,6%

26,1%

25,7%

-6,5%

5,3%

10,9%

23,6%

7,0%

165,35%

Dmitry Malykhin’s Track Record as the Chief Investment Adviser of Da Vinci CIS Opportunities Fund (from the Fund inception in March 2009). 2009
performance is audited
Net Return, MTD

Jan

Feb

2009

2010

7.45%

-1,97%

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

6,85%

15,97%

15,61%

0,23%

3,97%

-5,71%

8,09%

6,84%

-0,67%

3,98%

88,2%

11.76%

0.68%

-6.96%

-1.38%

7.12%

-3.41%

3.64%

4.1%

1.97%

6.5%

31.7%

13


Slide 10

Alternative Investments in Russia and the CIS

Valuable addition or dangerous addiction?
Hedge fund manager selection for private wealth portfolio

Olga Kokareva
Head of Marketing and Investor Relations
Da Vinci CIS Opportunities Fund
[email protected]

Private Banking in Russia & CIS, 10-11 March 2011

HNWIs regain their risk appetite
Breakdown of HNWI Financial Assets, 2006-2011F
100%
10%

9%

7%

14%

18%

6%

8%

18%

14%

90%
80%

24%
13%

70%

17%

17%

Real estate

21%

60%

14%

Cash/deposits
31%

50%
27%

40%

Alternative investments

21%

Fixed income

31%
29%

Equities
30%
20%
31%

33%

2006

2007

25%

10%

29%

35%

0%
2008

2009

2011F

*Source: Capgemini/Merrill Lynch Financial Advisor Surveys 2007, 2008, 2009, 2010

2

Return enhancement + diversification
Adding hedge funds to the portfolio of traditional investments improves efficient frontier

Traditional and alternative investments

• Reduction of portfolio volatility

Expected return

• Low correlation with traditional investment strategies
Traditional investments only

• Absolute return
• Profitability in different economic climates
• Diversification

Expected volatility

For illustrative purposes only, not drawn to scale.

*Demystifying the Role of Alternative Investments in a Diversified Investment Portfolio
By Baird’s Advisory Services Research

3

Skill-based strategies
Traditional assets

Hedge funds
Median return of managers by strategy

Annualized return

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

4.1%
7.2%

Annualized return

Median return of managers by asset class
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

Inter-quartile range of managers within asset class

Inter-quartile range of managers within strategy
10%

8%

6%
5%
4%
3%
2%
1%
0%

4.1%

Annualized return

Annualized return

7%

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

* “Are Funds of Funds simply multi-strategy managers with extra fees?” by G. Reddy, P. Brady, K. Patel. Based on statistical data for 6 years ending in march 2007

4

Formal approach is not enough anymore

5

Client is concerned about

Return OF
ON investments
Based on 100 hedge funds failures investigations*:
50% failures were caused by operational risks

38% investment risk
6% business risk
6% due to multiple problems

* Study by Capco partners Chris Kundro and Stuart Feffer

6

from private banker’s perspective
HNW investors are not loyal to firms or banks – they are loyal to advisors

In-house products

lack of diversification

limited universe of
instruments to chose from

Third-party products

lack of transparency

In-house due diligence

7

The reverse of selection process cornerstones

Fund size

too-much-money problem
capacity limits

Fund track record

vs fund manager track record

Big name

talent retention problem
= less operational risk
affiliated infrastructure risk

8

Highly underestimated source of potential risk:

Manager’s ego

How does the manager deal with success?

How does the manager react when things are going wrong?
Does the manager respect the market?

9

Hedge fund selection is about seeking stars not stamps

Advisor’s choice decides if adding a hedge fund to the client’s portfolio
turns it into a poisoned cocktail or optimal mix of diversified investments.

10

Da Vinci CIS Opportunities Fund
A fundamental multi-strategy hedge-fund focused on Russia and the CIS

11

Investment Philosophy and Fund Edge
Investment Philosophy

Da Vinci Hedge Fund Edge

 Respect the Market
 Information is asymmetric

 With western and local presence, we know
both outside perception and domestic reality.

 Inefficiencies create opportunities

 Excellent knowledge of Russian and CIS
markets and practices as well as flexible
mandate allows us to identify those
inefficiencies quickly and exploit them.

 Look for upside, protect downside

 Using derivatives allows us to enhance
return while limiting downside risk.

12

Track Record in the CIS
Dmitry Malykhin’s Track Record as the Head of Moscow Representative Office and later as the Head of Research and Trading of Wermuth Asset Management
GmbH. Wermuth Asset Management GmbH (WAM) is the Investment Adviser of the Greater Europe Fund Limited. Dmitry Malykhin’s period (1999 – 2006).
Net Return, MTD

Jan

Feb

1998

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,00%

0,10%

-3,87%

-1,26%

0,63%

-5,32%

6,08%

1,44%

7,34%

0,95%

5,56%

1999

0,43%

-4,97%

6,13%

5,89%

-4,03%

6,20%

2,79%

1,89%

17,19%

15,88%

2,78%

12,44%

79,68%

2000

-4,66%

10,47%

5,21%

-6,83%

-4,83%

-1,09%

2,89%

6,22%

-9,31%

-1,72%

-10,56%

2,02%

-13,62%

2001

8,69%

1,28%

-1,44%

2,51%

5,79%

6,24%

-1,47%

-0,74%

-7,04%

5,10%

7,14%

6,25%

35,97%

2002

5,64%

7,41%

4,72%

11,29%

1,15%

-9,91%

-6,88%

1,65%

-2,70%

6,47%

4,57%

-0,27%

23,23%

2003

-0,31%

9,52%

-3,64%

9,20%

7,38%

-0,19%

-0,28%

7,88%

12,93%

-1,10%

0,29%

4,87%

55,60%

2004

3,85%

7,49%

3,30%

-5,41%

-0,84%

1,16%

0,95%

0,76%

7,52%

3,77%

1,71%

0,69%

27,17%

2005

2,19%

14,36%

-6,65%

0,07%

-2,03%

0,00%

7,29%

12,65%

3,91%

-6,37%

4,99%

9,63%

44,76%

2006

20,57%

4,33%

-0,11%

12,63%

-7,88%

-3,75%

0,07%

1,81%

-7,78%

2,81%

6,65%

3,53%

33,83%

Dmitry Malykhin’s Track Record (2008 performance is audited) as an Investment Adviser of Worldcrest Limited (2008 - 2009). No performance or management
fees have been charged until Nov 2009. Worldcrest was merged with Da Vinci CIS Opportunities Fund in Nov 2009.
Net Return, MTD

Jan

2008
2009

-2,3%

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,2%

3,6%

3,1%

2,9%

-1,8%

0,9%

-3,6%

18,7%

0,1%

8,1%

-2,4%

31,87%

0,9%

17,6%

26,1%

25,7%

-6,5%

5,3%

10,9%

23,6%

7,0%

165,35%

Dmitry Malykhin’s Track Record as the Chief Investment Adviser of Da Vinci CIS Opportunities Fund (from the Fund inception in March 2009). 2009
performance is audited
Net Return, MTD

Jan

Feb

2009

2010

7.45%

-1,97%

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

6,85%

15,97%

15,61%

0,23%

3,97%

-5,71%

8,09%

6,84%

-0,67%

3,98%

88,2%

11.76%

0.68%

-6.96%

-1.38%

7.12%

-3.41%

3.64%

4.1%

1.97%

6.5%

31.7%

13


Slide 11

Alternative Investments in Russia and the CIS

Valuable addition or dangerous addiction?
Hedge fund manager selection for private wealth portfolio

Olga Kokareva
Head of Marketing and Investor Relations
Da Vinci CIS Opportunities Fund
[email protected]

Private Banking in Russia & CIS, 10-11 March 2011

HNWIs regain their risk appetite
Breakdown of HNWI Financial Assets, 2006-2011F
100%
10%

9%

7%

14%

18%

6%

8%

18%

14%

90%
80%

24%
13%

70%

17%

17%

Real estate

21%

60%

14%

Cash/deposits
31%

50%
27%

40%

Alternative investments

21%

Fixed income

31%
29%

Equities
30%
20%
31%

33%

2006

2007

25%

10%

29%

35%

0%
2008

2009

2011F

*Source: Capgemini/Merrill Lynch Financial Advisor Surveys 2007, 2008, 2009, 2010

2

Return enhancement + diversification
Adding hedge funds to the portfolio of traditional investments improves efficient frontier

Traditional and alternative investments

• Reduction of portfolio volatility

Expected return

• Low correlation with traditional investment strategies
Traditional investments only

• Absolute return
• Profitability in different economic climates
• Diversification

Expected volatility

For illustrative purposes only, not drawn to scale.

*Demystifying the Role of Alternative Investments in a Diversified Investment Portfolio
By Baird’s Advisory Services Research

3

Skill-based strategies
Traditional assets

Hedge funds
Median return of managers by strategy

Annualized return

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

4.1%
7.2%

Annualized return

Median return of managers by asset class
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

Inter-quartile range of managers within asset class

Inter-quartile range of managers within strategy
10%

8%

6%
5%
4%
3%
2%
1%
0%

4.1%

Annualized return

Annualized return

7%

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

* “Are Funds of Funds simply multi-strategy managers with extra fees?” by G. Reddy, P. Brady, K. Patel. Based on statistical data for 6 years ending in march 2007

4

Formal approach is not enough anymore

5

Client is concerned about

Return OF
ON investments
Based on 100 hedge funds failures investigations*:
50% failures were caused by operational risks

38% investment risk
6% business risk
6% due to multiple problems

* Study by Capco partners Chris Kundro and Stuart Feffer

6

from private banker’s perspective
HNW investors are not loyal to firms or banks – they are loyal to advisors

In-house products

lack of diversification

limited universe of
instruments to chose from

Third-party products

lack of transparency

In-house due diligence

7

The reverse of selection process cornerstones

Fund size

too-much-money problem
capacity limits

Fund track record

vs fund manager track record

Big name

talent retention problem
= less operational risk
affiliated infrastructure risk

8

Highly underestimated source of potential risk:

Manager’s ego

How does the manager deal with success?

How does the manager react when things are going wrong?
Does the manager respect the market?

9

Hedge fund selection is about seeking stars not stamps

Advisor’s choice decides if adding a hedge fund to the client’s portfolio
turns it into a poisoned cocktail or optimal mix of diversified investments.

10

Da Vinci CIS Opportunities Fund
A fundamental multi-strategy hedge-fund focused on Russia and the CIS

11

Investment Philosophy and Fund Edge
Investment Philosophy

Da Vinci Hedge Fund Edge

 Respect the Market
 Information is asymmetric

 With western and local presence, we know
both outside perception and domestic reality.

 Inefficiencies create opportunities

 Excellent knowledge of Russian and CIS
markets and practices as well as flexible
mandate allows us to identify those
inefficiencies quickly and exploit them.

 Look for upside, protect downside

 Using derivatives allows us to enhance
return while limiting downside risk.

12

Track Record in the CIS
Dmitry Malykhin’s Track Record as the Head of Moscow Representative Office and later as the Head of Research and Trading of Wermuth Asset Management
GmbH. Wermuth Asset Management GmbH (WAM) is the Investment Adviser of the Greater Europe Fund Limited. Dmitry Malykhin’s period (1999 – 2006).
Net Return, MTD

Jan

Feb

1998

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,00%

0,10%

-3,87%

-1,26%

0,63%

-5,32%

6,08%

1,44%

7,34%

0,95%

5,56%

1999

0,43%

-4,97%

6,13%

5,89%

-4,03%

6,20%

2,79%

1,89%

17,19%

15,88%

2,78%

12,44%

79,68%

2000

-4,66%

10,47%

5,21%

-6,83%

-4,83%

-1,09%

2,89%

6,22%

-9,31%

-1,72%

-10,56%

2,02%

-13,62%

2001

8,69%

1,28%

-1,44%

2,51%

5,79%

6,24%

-1,47%

-0,74%

-7,04%

5,10%

7,14%

6,25%

35,97%

2002

5,64%

7,41%

4,72%

11,29%

1,15%

-9,91%

-6,88%

1,65%

-2,70%

6,47%

4,57%

-0,27%

23,23%

2003

-0,31%

9,52%

-3,64%

9,20%

7,38%

-0,19%

-0,28%

7,88%

12,93%

-1,10%

0,29%

4,87%

55,60%

2004

3,85%

7,49%

3,30%

-5,41%

-0,84%

1,16%

0,95%

0,76%

7,52%

3,77%

1,71%

0,69%

27,17%

2005

2,19%

14,36%

-6,65%

0,07%

-2,03%

0,00%

7,29%

12,65%

3,91%

-6,37%

4,99%

9,63%

44,76%

2006

20,57%

4,33%

-0,11%

12,63%

-7,88%

-3,75%

0,07%

1,81%

-7,78%

2,81%

6,65%

3,53%

33,83%

Dmitry Malykhin’s Track Record (2008 performance is audited) as an Investment Adviser of Worldcrest Limited (2008 - 2009). No performance or management
fees have been charged until Nov 2009. Worldcrest was merged with Da Vinci CIS Opportunities Fund in Nov 2009.
Net Return, MTD

Jan

2008
2009

-2,3%

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,2%

3,6%

3,1%

2,9%

-1,8%

0,9%

-3,6%

18,7%

0,1%

8,1%

-2,4%

31,87%

0,9%

17,6%

26,1%

25,7%

-6,5%

5,3%

10,9%

23,6%

7,0%

165,35%

Dmitry Malykhin’s Track Record as the Chief Investment Adviser of Da Vinci CIS Opportunities Fund (from the Fund inception in March 2009). 2009
performance is audited
Net Return, MTD

Jan

Feb

2009

2010

7.45%

-1,97%

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

6,85%

15,97%

15,61%

0,23%

3,97%

-5,71%

8,09%

6,84%

-0,67%

3,98%

88,2%

11.76%

0.68%

-6.96%

-1.38%

7.12%

-3.41%

3.64%

4.1%

1.97%

6.5%

31.7%

13


Slide 12

Alternative Investments in Russia and the CIS

Valuable addition or dangerous addiction?
Hedge fund manager selection for private wealth portfolio

Olga Kokareva
Head of Marketing and Investor Relations
Da Vinci CIS Opportunities Fund
[email protected]

Private Banking in Russia & CIS, 10-11 March 2011

HNWIs regain their risk appetite
Breakdown of HNWI Financial Assets, 2006-2011F
100%
10%

9%

7%

14%

18%

6%

8%

18%

14%

90%
80%

24%
13%

70%

17%

17%

Real estate

21%

60%

14%

Cash/deposits
31%

50%
27%

40%

Alternative investments

21%

Fixed income

31%
29%

Equities
30%
20%
31%

33%

2006

2007

25%

10%

29%

35%

0%
2008

2009

2011F

*Source: Capgemini/Merrill Lynch Financial Advisor Surveys 2007, 2008, 2009, 2010

2

Return enhancement + diversification
Adding hedge funds to the portfolio of traditional investments improves efficient frontier

Traditional and alternative investments

• Reduction of portfolio volatility

Expected return

• Low correlation with traditional investment strategies
Traditional investments only

• Absolute return
• Profitability in different economic climates
• Diversification

Expected volatility

For illustrative purposes only, not drawn to scale.

*Demystifying the Role of Alternative Investments in a Diversified Investment Portfolio
By Baird’s Advisory Services Research

3

Skill-based strategies
Traditional assets

Hedge funds
Median return of managers by strategy

Annualized return

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

4.1%
7.2%

Annualized return

Median return of managers by asset class
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

Inter-quartile range of managers within asset class

Inter-quartile range of managers within strategy
10%

8%

6%
5%
4%
3%
2%
1%
0%

4.1%

Annualized return

Annualized return

7%

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

* “Are Funds of Funds simply multi-strategy managers with extra fees?” by G. Reddy, P. Brady, K. Patel. Based on statistical data for 6 years ending in march 2007

4

Formal approach is not enough anymore

5

Client is concerned about

Return OF
ON investments
Based on 100 hedge funds failures investigations*:
50% failures were caused by operational risks

38% investment risk
6% business risk
6% due to multiple problems

* Study by Capco partners Chris Kundro and Stuart Feffer

6

from private banker’s perspective
HNW investors are not loyal to firms or banks – they are loyal to advisors

In-house products

lack of diversification

limited universe of
instruments to chose from

Third-party products

lack of transparency

In-house due diligence

7

The reverse of selection process cornerstones

Fund size

too-much-money problem
capacity limits

Fund track record

vs fund manager track record

Big name

talent retention problem
= less operational risk
affiliated infrastructure risk

8

Highly underestimated source of potential risk:

Manager’s ego

How does the manager deal with success?

How does the manager react when things are going wrong?
Does the manager respect the market?

9

Hedge fund selection is about seeking stars not stamps

Advisor’s choice decides if adding a hedge fund to the client’s portfolio
turns it into a poisoned cocktail or optimal mix of diversified investments.

10

Da Vinci CIS Opportunities Fund
A fundamental multi-strategy hedge-fund focused on Russia and the CIS

11

Investment Philosophy and Fund Edge
Investment Philosophy

Da Vinci Hedge Fund Edge

 Respect the Market
 Information is asymmetric

 With western and local presence, we know
both outside perception and domestic reality.

 Inefficiencies create opportunities

 Excellent knowledge of Russian and CIS
markets and practices as well as flexible
mandate allows us to identify those
inefficiencies quickly and exploit them.

 Look for upside, protect downside

 Using derivatives allows us to enhance
return while limiting downside risk.

12

Track Record in the CIS
Dmitry Malykhin’s Track Record as the Head of Moscow Representative Office and later as the Head of Research and Trading of Wermuth Asset Management
GmbH. Wermuth Asset Management GmbH (WAM) is the Investment Adviser of the Greater Europe Fund Limited. Dmitry Malykhin’s period (1999 – 2006).
Net Return, MTD

Jan

Feb

1998

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,00%

0,10%

-3,87%

-1,26%

0,63%

-5,32%

6,08%

1,44%

7,34%

0,95%

5,56%

1999

0,43%

-4,97%

6,13%

5,89%

-4,03%

6,20%

2,79%

1,89%

17,19%

15,88%

2,78%

12,44%

79,68%

2000

-4,66%

10,47%

5,21%

-6,83%

-4,83%

-1,09%

2,89%

6,22%

-9,31%

-1,72%

-10,56%

2,02%

-13,62%

2001

8,69%

1,28%

-1,44%

2,51%

5,79%

6,24%

-1,47%

-0,74%

-7,04%

5,10%

7,14%

6,25%

35,97%

2002

5,64%

7,41%

4,72%

11,29%

1,15%

-9,91%

-6,88%

1,65%

-2,70%

6,47%

4,57%

-0,27%

23,23%

2003

-0,31%

9,52%

-3,64%

9,20%

7,38%

-0,19%

-0,28%

7,88%

12,93%

-1,10%

0,29%

4,87%

55,60%

2004

3,85%

7,49%

3,30%

-5,41%

-0,84%

1,16%

0,95%

0,76%

7,52%

3,77%

1,71%

0,69%

27,17%

2005

2,19%

14,36%

-6,65%

0,07%

-2,03%

0,00%

7,29%

12,65%

3,91%

-6,37%

4,99%

9,63%

44,76%

2006

20,57%

4,33%

-0,11%

12,63%

-7,88%

-3,75%

0,07%

1,81%

-7,78%

2,81%

6,65%

3,53%

33,83%

Dmitry Malykhin’s Track Record (2008 performance is audited) as an Investment Adviser of Worldcrest Limited (2008 - 2009). No performance or management
fees have been charged until Nov 2009. Worldcrest was merged with Da Vinci CIS Opportunities Fund in Nov 2009.
Net Return, MTD

Jan

2008
2009

-2,3%

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,2%

3,6%

3,1%

2,9%

-1,8%

0,9%

-3,6%

18,7%

0,1%

8,1%

-2,4%

31,87%

0,9%

17,6%

26,1%

25,7%

-6,5%

5,3%

10,9%

23,6%

7,0%

165,35%

Dmitry Malykhin’s Track Record as the Chief Investment Adviser of Da Vinci CIS Opportunities Fund (from the Fund inception in March 2009). 2009
performance is audited
Net Return, MTD

Jan

Feb

2009

2010

7.45%

-1,97%

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

6,85%

15,97%

15,61%

0,23%

3,97%

-5,71%

8,09%

6,84%

-0,67%

3,98%

88,2%

11.76%

0.68%

-6.96%

-1.38%

7.12%

-3.41%

3.64%

4.1%

1.97%

6.5%

31.7%

13


Slide 13

Alternative Investments in Russia and the CIS

Valuable addition or dangerous addiction?
Hedge fund manager selection for private wealth portfolio

Olga Kokareva
Head of Marketing and Investor Relations
Da Vinci CIS Opportunities Fund
[email protected]

Private Banking in Russia & CIS, 10-11 March 2011

HNWIs regain their risk appetite
Breakdown of HNWI Financial Assets, 2006-2011F
100%
10%

9%

7%

14%

18%

6%

8%

18%

14%

90%
80%

24%
13%

70%

17%

17%

Real estate

21%

60%

14%

Cash/deposits
31%

50%
27%

40%

Alternative investments

21%

Fixed income

31%
29%

Equities
30%
20%
31%

33%

2006

2007

25%

10%

29%

35%

0%
2008

2009

2011F

*Source: Capgemini/Merrill Lynch Financial Advisor Surveys 2007, 2008, 2009, 2010

2

Return enhancement + diversification
Adding hedge funds to the portfolio of traditional investments improves efficient frontier

Traditional and alternative investments

• Reduction of portfolio volatility

Expected return

• Low correlation with traditional investment strategies
Traditional investments only

• Absolute return
• Profitability in different economic climates
• Diversification

Expected volatility

For illustrative purposes only, not drawn to scale.

*Demystifying the Role of Alternative Investments in a Diversified Investment Portfolio
By Baird’s Advisory Services Research

3

Skill-based strategies
Traditional assets

Hedge funds
Median return of managers by strategy

Annualized return

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

4.1%
7.2%

Annualized return

Median return of managers by asset class
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

Inter-quartile range of managers within asset class

Inter-quartile range of managers within strategy
10%

8%

6%
5%
4%
3%
2%
1%
0%

4.1%

Annualized return

Annualized return

7%

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

* “Are Funds of Funds simply multi-strategy managers with extra fees?” by G. Reddy, P. Brady, K. Patel. Based on statistical data for 6 years ending in march 2007

4

Formal approach is not enough anymore

5

Client is concerned about

Return OF
ON investments
Based on 100 hedge funds failures investigations*:
50% failures were caused by operational risks

38% investment risk
6% business risk
6% due to multiple problems

* Study by Capco partners Chris Kundro and Stuart Feffer

6

from private banker’s perspective
HNW investors are not loyal to firms or banks – they are loyal to advisors

In-house products

lack of diversification

limited universe of
instruments to chose from

Third-party products

lack of transparency

In-house due diligence

7

The reverse of selection process cornerstones

Fund size

too-much-money problem
capacity limits

Fund track record

vs fund manager track record

Big name

talent retention problem
= less operational risk
affiliated infrastructure risk

8

Highly underestimated source of potential risk:

Manager’s ego

How does the manager deal with success?

How does the manager react when things are going wrong?
Does the manager respect the market?

9

Hedge fund selection is about seeking stars not stamps

Advisor’s choice decides if adding a hedge fund to the client’s portfolio
turns it into a poisoned cocktail or optimal mix of diversified investments.

10

Da Vinci CIS Opportunities Fund
A fundamental multi-strategy hedge-fund focused on Russia and the CIS

11

Investment Philosophy and Fund Edge
Investment Philosophy

Da Vinci Hedge Fund Edge

 Respect the Market
 Information is asymmetric

 With western and local presence, we know
both outside perception and domestic reality.

 Inefficiencies create opportunities

 Excellent knowledge of Russian and CIS
markets and practices as well as flexible
mandate allows us to identify those
inefficiencies quickly and exploit them.

 Look for upside, protect downside

 Using derivatives allows us to enhance
return while limiting downside risk.

12

Track Record in the CIS
Dmitry Malykhin’s Track Record as the Head of Moscow Representative Office and later as the Head of Research and Trading of Wermuth Asset Management
GmbH. Wermuth Asset Management GmbH (WAM) is the Investment Adviser of the Greater Europe Fund Limited. Dmitry Malykhin’s period (1999 – 2006).
Net Return, MTD

Jan

Feb

1998

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,00%

0,10%

-3,87%

-1,26%

0,63%

-5,32%

6,08%

1,44%

7,34%

0,95%

5,56%

1999

0,43%

-4,97%

6,13%

5,89%

-4,03%

6,20%

2,79%

1,89%

17,19%

15,88%

2,78%

12,44%

79,68%

2000

-4,66%

10,47%

5,21%

-6,83%

-4,83%

-1,09%

2,89%

6,22%

-9,31%

-1,72%

-10,56%

2,02%

-13,62%

2001

8,69%

1,28%

-1,44%

2,51%

5,79%

6,24%

-1,47%

-0,74%

-7,04%

5,10%

7,14%

6,25%

35,97%

2002

5,64%

7,41%

4,72%

11,29%

1,15%

-9,91%

-6,88%

1,65%

-2,70%

6,47%

4,57%

-0,27%

23,23%

2003

-0,31%

9,52%

-3,64%

9,20%

7,38%

-0,19%

-0,28%

7,88%

12,93%

-1,10%

0,29%

4,87%

55,60%

2004

3,85%

7,49%

3,30%

-5,41%

-0,84%

1,16%

0,95%

0,76%

7,52%

3,77%

1,71%

0,69%

27,17%

2005

2,19%

14,36%

-6,65%

0,07%

-2,03%

0,00%

7,29%

12,65%

3,91%

-6,37%

4,99%

9,63%

44,76%

2006

20,57%

4,33%

-0,11%

12,63%

-7,88%

-3,75%

0,07%

1,81%

-7,78%

2,81%

6,65%

3,53%

33,83%

Dmitry Malykhin’s Track Record (2008 performance is audited) as an Investment Adviser of Worldcrest Limited (2008 - 2009). No performance or management
fees have been charged until Nov 2009. Worldcrest was merged with Da Vinci CIS Opportunities Fund in Nov 2009.
Net Return, MTD

Jan

2008
2009

-2,3%

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

0,2%

3,6%

3,1%

2,9%

-1,8%

0,9%

-3,6%

18,7%

0,1%

8,1%

-2,4%

31,87%

0,9%

17,6%

26,1%

25,7%

-6,5%

5,3%

10,9%

23,6%

7,0%

165,35%

Dmitry Malykhin’s Track Record as the Chief Investment Adviser of Da Vinci CIS Opportunities Fund (from the Fund inception in March 2009). 2009
performance is audited
Net Return, MTD

Jan

Feb

2009

2010

7.45%

-1,97%

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

YTD

6,85%

15,97%

15,61%

0,23%

3,97%

-5,71%

8,09%

6,84%

-0,67%

3,98%

88,2%

11.76%

0.68%

-6.96%

-1.38%

7.12%

-3.41%

3.64%

4.1%

1.97%

6.5%

31.7%

13