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The Hedgeweek Interview: Stephen Cohen, Managing Director, Troika Dialog (UK) Ltd: WTO will benefit Russia

Stephen Cohen discusses the impact of changes in Russia's political economy on Troika Russia Fund's future plans. 

Stephen Cohen is a Director of the General Partner of the TRF limited partnership and of the TRF feeder fund. Before joining Troika Dialog, he was CEO of EMEA business and head of the London office of Putnam Investments. He has worked in the asset management business for over 25 years.

HW: What is the background to the fund?

SC: The Troika Russia Fund was launched on May 3 2006 with USD 42 million, based on the A2A investment strategy developed and operated by Troika Dialog Asset Management for its Russian HNWI clients since July 2002.  The Manager is TDAM (Cyprus) Ltd and the Investment advisor is ZAO Troika Dialog Asset Management in Moscow. The CIO of ZAO Troika Dialog Asset Management is Oleg Larichev, who has been with the company for 8 years. Risk Oversight and Control is provided by Pavel Teplukhin, the Chairman of ZAO Troika Dialog Asset Management and by Stephen Cohen, Managing Director of Troika Dialog (UK) Ltd, who is also a Director of the Troika Russia Fund.

HW: Who are your service providers?

SC: Our Fund Administrator is JPMorgan Tranaut in Dublin and our Prime Broker is Deutsche Bank in London. Our Legal Advisors are Dechert LLP and Accountants are Price Waterhouse Coopers.

HW: How and where do you distribute the fund? What is your current and targeted client base?

SC: Broad geographic distribution to HNWI, Fund of Funds, Family Offices and Private Banks

HW: What is the investment process of your fund?

SC: The Troika Russia Fund is a Russia plus CIS equity/long short fund using proprietary fundamental research and analysis, including both top down and bottom-up decision-making.  The returns are expected to come from long and short positions, relative value pair trades and capital structure trades plus IPO & pre-IPO investments.

HW: How do you generate ideas for your fund?

SC: Ideas are generated by the team of investment professionals through their own research activities, industry contacts and database screening plus third party research providers

HW: What is your approach to managing risk?

SC: In markets as volatile as Russia conventional risk models do not work well. Thus the most important risk controls are the investment professionals' detailed knowledge of the markets and the companies in which they invest the team-based discussions around any investment decisions, and the oversight by experienced senior management. That said, all the risk factors and exposures are monitored continuously and clear limits are agreed and adhered to.

HW: How/against what do you benchmark the performance of your fund?

SC: The Troika Russia Fund aims for a positive absolute rate of return over time and thus does not use a benchmark index.

HW: Has your performance been as per budget and expectations? Do you expect your performance or style to change going forward?

SC: We have been pleased with the performance the A2A strategy delivered over the period 07/02 through 03/06, 34.5% per annum, with the fact that volatility has been below market and with the composition of these returns - namely helping to protect investors during market corrections and adding value from the different elements of the portfolio strategy. Over time our strategy has evolved as the Russia/CIS markets have evolved. It has become easier to short a wider range of stocks. Many new companies have listed. The derivatives market is now growing rapidly and it has become possible in particular to buy and sell OTC options on individual stocks. We expect that our strategy will evolve similarly in the years to come and, in particular, we expect many more listings and we expect the breadth and depth of the non-Russian CIS markets to improve markedly.

HW: What opportunities are you looking at right now?

SC: We expect a series of IPO's in Russia, Kazakhstan and Ukraine which will significantly widen the investable universe for the fund and which may constitute interesting opportunities. Relative value trades are more challenging in a rapidly changing environment, however, we are closely watching for possible opportunities in the telecom and consumer sectors. Capital structure arbitrage trades remain interesting.

HW: What events do you expect to see in your sector in the year ahead?

SC: The immediate global issues driving markets (i.e. concerns about global growth, US inflation and interest rates) will continue to be very important. Besides this, Russia is planning to make the Rouble fully convertible. This could accelerate de-dollarisation and lead to possible upward pressure on the Rouble.  It should further integrate the country into the world's financial system. WTO entrance would also be positive for Russia.

HW: How will these changes/future events impact on your own portfolio?

SC: Valuations across countries should converge further, as Russia becomes more integrated. This could provide opportunities for relative value trades. As the monetization of the Russian economy proceeds apace the financial sector looks interesting, with several new issues in the pipeline. We are also looking at the optimum timing to initiate exposure to Ukraine and Kazakhstan.

HW: What differentiates you from other managers in your sector?

SC: Troika Dialog has an experienced team of local Russian investment professionals, who have developed a deep understanding of the markets and of how to manage a successful long/short strategy. The company has been in existence for ten years, has seen many ups and downs in the markets and has remained deeply committed to Russia/CIS markets, providing excellent performance in a wide variety of market conditions.

HW: Do you have any plans for similar/other product launches in the near future?

SC: We have no plans for the immediate future.

Stephen Cohen was interviewed on 31 May 2006.

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