The Russian Hedge Fund Universe data as of December 31, 2016 - PowerPoint PPT Presentation

The Russian Hedge Fund Universe data as of December 31, 2016 [presentation dated May 15, 2017] Michael Boboshko Chairman, Hedge Fund Committee National Alternative Investment Management Association

…BUT FIRST… Worldwide Fund Assets Under Management: $60-70 tn Traditional Investments $45-50 tn Alternative Investments $15-20 tn Hedge Russian Hedge Funds Funds Sources: HFR, PreQuin, Bloomberg, ETFGI, ICI, NAIMA Michael Boboshko 2 Independent Consultant

…What is a Traditional Investment Fund? • “On - Shore” • Regulated • Accessible to Retail Investors – the most vulnerable • Highly Liquid – daily liquidity • Conservative – strict rules on diversification; no leverage • No Incentive Compensation – only management fee • Traditional Asset Classes/Strategies Michael Boboshko 3 Independent Consultant

…What is an Alternative Investment Fund? • “Off - Shore” – often zero tax jurisdictions • Usually Un-regulated – sometimes in-house administration • Strictly for “Qualified Investors” • Limited Liquidity – HF monthly, PE long- term “lock up” • More Aggressive/Risky – leverage, derivatives, concentration • Incentive Compensation – performance fee (“Carry”) • Alternative Asset Classes/Strategies Michael Boboshko 4 Independent Consultant

…The Alternative Investment Fund Universe: $15 tn Alternative Investment Funds About $4 tn About $11 tn Hedge Funds 1 Private Equity Funds 2 (Liquid, Public Investments) (Illiquid, Private Investments) Private Venture Real Equity Event Relative Equity Capital Estate Macro Hedge Driven Value Early Stage Angel Stage Early Stage Late Stage Early Stage Late Stage Pre-IPO Late Stage Pre-IPO Fund of Funds Fund of Funds Fund of Funds 1 Invested cash mainly gets exchanged in the secondary market; but hedge funds often participate in IPOs 2 Invested cash mainly goes to the investee companies; but sometimes PE/VC/RE funds also make secondary market purchases Sources: HFR, PreQuin, Bloomberg, NAIMA Michael Boboshko 5 Independent Consultant

…What is a Hedge Fund? • Usually Un-Regulated or Lightly Regulated • Liquid Portfolio – trade in listed securities & derivatives • Semi-Liquid for Investors – usually Monthly NAV cycle • Absolute Return – can make money in all market cycles • DECORROLATED returns! • Lower Volatility – hedging & shorting • Leverage – often very high leverage; algorithmic strategies • Incentive Compensation • 2% management fee (market is falling) • 20% performance fee (market is more-or-less stable) …but usually over a certain “hurdle rate” Michael Boboshko 6 Independent Consultant

…Hedge Fund vs. Mutual Fund vs. ETF 100 Brains Alpha/SHARP Costs/Fees 80 60 40 20 0 ETFs Mutual Funds Hedge Funds Michael Boboshko 7 Independent Consultant

… The Global Hedge Fund Industry 40,00% Excess Return (Return over Volatility) Gross Return 30,00% 20,00% 10,00% 0,00% '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 -10,00% The HFRI Fund Weighted Composite Index The S&P500 Index The RTS Index -20,00% 25-Year Annualized Return: 9.3% 10-Year Annualized Return: 4.7% 10-Year Annualized Return: -5% 25-Year Annualized Volatility: 6.6% 10-Year Annualized Volatility: 15.3% 10-Year Annualized Volatility: 35.0% 25-Year Excess Return: 2.7% [SHARP: 1.4x] 10-Year Excess Return: -10,6% [SHARP: 0.3x] 10-Year Excess Return: -40% -30,00% Sources: HFR, MICEX, NAIMA Michael Boboshko 8 Independent Consultant

…What is a Russian Hedge Fund? • What is meant by “Russian”? • Local Russian Manager/Advisor (at least in spirit) • At least some minor business presence in Russia • Not necessarily a Russia-focused investment strategy • What is meant by “hedge fund”? • Broad definition, not narrow definition • Alternative investment fund investing in traded instruments • Not a PE/VC/RE fund – Note: most of the funds in the universe remain “long - only” by nature and thus do not attempt to reduce volatility (“risk”). – Note: the source for almost all of the data to follow is the Investment Managers / Investment Advisors themselves; some data is from independent sources such as Bloomberg and general internet search Michael Boboshko 9 Independent Consultant

…Historical Growth Trend in Funds… [Note: funds counted below only those with available data] 120 2016 finally saw a modest trend reversal, with 105 one more new fund launching than funds closing 100 96 95 92 82 78 77 80 68 65 64 64 60 54 38 40 25 19 18 20 14 13 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Closed Michael Boboshko 10 Independent Consultant

…By Core Geographic Investment Focus… [Note: % in brackets represents whole history, including closed funds] Russia/CIS 29% (59%) Non-Russia/CIS 71% (41%) Michael Boboshko 11 Independent Consultant

…By Core Asset Class… [Note: % in brackets represents whole history, including closed funds] Equity (53%) 6% 11% Multi-Asset Class (21%) Derivatives 14% 50% (7%) Fixed-Income (12%) 19% Other Asset Classes (7%) Michael Boboshko 12 Independent Consultant

…By Size of Fund (NAV)… [Note: total estimated size of the universe: $4.5 – $5.0 bn] <$10 mn 5% 14% $10-49 mn 39% 5% $50-99 mn $100-499 mn 37% $500 mn+ Michael Boboshko 13 Independent Consultant

…By Length of Track Record… <5 years (56%) 13% 10% 5-10 years (28%) 56% 10-15 years (8%) 21% 15+ years (8%) Michael Boboshko 14 Independent Consultant

…By Jurisdiction of Incorporation… [ Note: % in brackets represents whole history, including closed funds ] Cayman (68%) 10% 6% BVI (9%) 10% Luxembourg (4%) 74% Other (11%) Michael Boboshko 15 Independent Consultant

…By Selection NAV Cycle… [ Note: % in brackets represents whole history, including closed funds ] Monthly 5% 3% (81%) 16% Weekly (9%) Quarterly (7%) 76% Others (3%) Michael Boboshko 16 Independent Consultant

…By Fund Fee Structure… [Note: traditional “2%/20%” model also under pressure in Russia] Low High Average Management Fee 0,5% 2,5% 1,6% Performance Fee 0,0% 50,0% 17,2% Hurdle Rate * 0,0% 20,0% 2,8% * also: FedFunds; US$LIBOR; US$LIBOR+50bp; RTS Index Michael Boboshko 17 Independent Consultant

…2016 Performance…A Very Good Year! [hedge funds of all geographic focuses and all asset classes] 2016 Performance (X) vs. Volatility (Y) 40,0% 35,0% 30,0% 25,0% 20,0% Avg. Return: +24% Avg. VOL: 14% 15,0% 10,0% HFRI-FWCI: +5.5%% RTSI: +52% 5,0% 0,0% -80,0% -60,0% -40,0% -20,0% 0,0% 20,0% 40,0% 60,0% 80,0% 100,0% 120,0% 140,0% Michael Boboshko 18 Independent Consultant

…Historical Performance… [hedge funds of all geographic focuses and all asset classes] Historical Performance (X) vs. Volatility (Y) 60,0% 50,0% 40,0% 30,0% Avg. Return: +6% Avg. VOL: 21% 20,0% Avg. Track: (years) 6.75 10,0% 0,0% -30,0% -20,0% -10,0% 0,0% 10,0% 20,0% 30,0% 40,0% 50,0% 60,0% Michael Boboshko 19 Independent Consultant