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Hedge-Funds for Russians. October - December, 2014

25 December 2014

Right now is January 2015, but Spear’s hedge –fund rating was published only for October of 2014. Let’s be honest, the last quarter of the past year became a financial disaster for Russia. It could be compared to the crisis of 1998. Oil’s prices reduction was the first reason for falling of Russian ruble. Less money began to come in to the treasury. The decrease of money today is  similar to the devalution in 1998, when oil’s prices were heavily felt. The second reason for decrease of ruble was a big external debt of the state-owned companies and  sanctions which restricted borrowing from foreign banks.  I think, in this situation the Central Bank of Russia will not be able to contain inflation and recession will reinforce Russia’s economy.  The significant growth of prices we will see in January and February of 2015 when goods will be sold in a new exchange rate after the devaluation in Russia.  As a result of devaluation wages and prices of Russian’s goods will fall.  This decrease would give stimulus  for the remaining industry in Russia and, therefore, unemployment  should decrease or disappear completely. Because of that, reinforcement of the recession, logically, should not happen  in 2015. Unfortunately,  the huge debt of state-owned companies in foreign currencies will  cause reduction of costs . As the result, there will be an employment layoff. Small businesses in Russia could start  prospering and expanding to alleviate unemployment from employee layoffs in the big companies, but it doesn’t provide opportunities for development. Interest rates and taxes have  gone up thereby depriving business opportunities for growth.  Consequently, if the Russian government doesn’t attempt radical economic reforms,  we could wait for the reinforcement of recession and  growth of unemployment in 2015. Even if this happens, however, it will take several years to see the economic effect.

2014 gave me a kick for quick transfers of assets into the USA market. In the written portion  of  the hedge-fund memorandum  it says that Eganov Asset Management Stocks & Derivatives Strategies S.P makes deals in the  American and Russian financial markets.  When I started my fund in February 2013, the trading strategies for the USA market did not give me confidence in success and I decided to trade only in the Russian market,  even though I continued to  develop the strategies for the USA market. The creation and development of the strategies  is  not an easy process.  I did not have enough confidence to get them started untill the event that happened in Crimea in March of 2014.  At that time my hedge-fund dropped to 9%.  The cause of this decrease was, first of all,  a big gap down on the stock-exchange on Monday, March 3. Second of all, the Moscow exchange increased the requirements for initial margin.  The fund could not make deals for hedging because all money was  blocked on the exchange. Every cloud has a silver lining and now, I understand, because  the March crisis was a good stimulus for me to trade on the USA market. In April, I reduced assets in Russia by 50% and began to trade  with the Chicago Board Options Exchange (CBOE). In August, I published a new presentation of the hedge-fund on the web-site in which I informed about updating our team and new trading strategies. In December, I transferred all assets of the hedge-fund in the CBOE. In the last six months, my hedge-fund  made a profit and in the summary  my team and I completely repaid all losses of the March, 2014. Our annual return since May, after the beginning of trade  with CBOE, was about 17% and  return on strategies  was more than 40%, when in  2014 there was 0% of return because of drop in March.

In conclusion,  let’s take a look at Spear’s rating of October 2014  about other Russian Hedge Funds.  Kvadrat Black Fund SP was at the top of the rating in October. Due to the SP prefix this is a sub-fund of the administrator’s big managed platform.  I am sure it is  an advantage for the small hedge-funds and their clients. More detail about advantages and disadvantages of sub-funds can be found in my article «Ńīēäąķčå Õåäę-ōīķäą».

In October 2014 Kvadrat Black Fund SP was at the top due to its monthly return:

Ticker in Bloomberg

Monthly return, %

Return since the beginning of the year, %

Annual return,%

KVABLCK KY

5,38

9,27

9,47

 

There is little information for potential  clients on  Kvadrat Black Fund SP’ s web-site. I did not find any information on the biggest web-site, which collects analytics about the hedge –funds,  HedgeCo. With Google’s help, I  found the links to this fund on Bloomberg and on UnitedTraders’ web-site. According to Bloomberg the hedge-fund has started its business in July 31, 2013. The maximum drawdown was 5.63% and annual return 10.20% for October 31. In the first year, the fund had 0% return. It increased sharply almost by 13% from July to October.

A brief  description from the Bloomberg’s web-site:

Kvadrat Black Fund SP is open fund incorporated in the Cayman Islands. The Fund’s objective is to provide high current income. The Fund invests in liquid securities traded on main with US and Russian financial markets. The Fund invests in global market assets-primarily in ETFs, equities, options and futures with a  focus on liquidity.

After learning  the information from the open sources, I usually call  the office of the hedge-fund and ask about it as a potential client. When I called, the menager of UnitedTraders company answered. He explained that UnitedTraders and Kvadrat UnitedTraders SP are business partners and related organizations.  I got detailed information from the menager, but not thoroughly enough for me. For example, the manager told me that in the memorandum of the fund it is written that the fund guarantees to repay part of the money if the fund loses more than 20% from the client’s capital.  Also it seemed  strange to me that the prospective client only signs  the agreement and makes a money transfer without compliance procedures. I am writing these examples only so that prospective clients from Russia can know these necessary procedures to invest money into hedge-funds. I don’t want to say that those employees are not the authority. This fund is very young and has not had a lot of experience with clients in the hedge-fund industry. The first purchase of shares of any hedge-fund is a rather complicated process demanding patience of the client.  This procedure is similar to opening a bank account in a foreign bank, and it requires providing a certain number of  documents confirming your reliability  and ensuring that your money was not earned in criminal way. If I understood correctly from the conversation with the manager,Trinity Fund Administration Ltd is an administrator of Kvadrat Black Fund SP. This company is a big and famous administrator in the hedge-fund industry and I am sure that it demands all documents from prospective clients for compliance .

As a whole, the hedge-fund Kvadrat Black Fund SP left a positive impression. According to information, the  team of the fund has professionally managed assets frequently  in Russian and foreign markets. In November and December2014 the fund gave a rate of return of +3,85% and +2,14% consequently. It finished the year 2014 with an annual return +15,92%. I can recommend Kvadrat Black Fund SP for investments more than 3 years.

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