Dear Friends of Diamond Age,

In case you did not have a chance to see it, please find attached a PDF copy of an article from Russian Forbes magazine on Diamond Age; and my personal and professional career history. I would like to also add the following: the success of Diamond Age would not have been possible without the outstanding team of investment professionals which we have been fortunate to assemble. So in the end, we all be judged, hopefully by each other, and had we all not worked together, there would have been no Diamond Age.

Sincerely,
Slava Rabinovich,CEO
DIAMOND AGE CAPITAL ADVISORS LTD.

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...Diamond Age is most fortunate to be featured as the EUROMONEY Cover Story and the accompanying nine-page colour pictorial, detailing the pioneering investment process of the Fund's unwavering mandate to search the FSU for value, in distant places, uncrowded trades and industries far from the oil-heavy RTS Index. Click on the link below to enter a mysterious and beautiful world with outstanding profit potential wholly unrechable for the usual portfolio investor. As Diamond Age was the first ever fund allowed to invest in Uzbekistan, of the first to buy Rose Revolution Georgian Sovereign debt, one of the early pioneers in the Ukraine prior to the Orange Revolution, and living, working and investing from the Tbilisi to Baku to Ashgabat to Tashkent to Almaty to Bishkek and beyond, since 1998, our professional experiences in the Caucasus, Caspian Basin, and Central Asia are unrivalled. Diamond Age would like to extend heartfelt thanks to Kathryn Wells of Euromoney for her tireless dedication in tracing our every footstep and finding even more than a few surprises in this oft-misunderstood and most promising parts of the world.
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...there are hedge funds with even more broad geographical dispersion. For example, Diamond Age Russia Fund Limited (over 90% return since February of 2005) invests in financial securities in Ukraine, Kazakhstan, Kyrgyzstan, Azerbaijan, Georgia, the Baltic's, Uzbekistan, and over 27 countries globally whose principal focus is the FSU. Approximately 25% of the fund is invested in countries of the former Soviet Union, 15% Global, and around 60% - in Russia.

Many financial professionals believe that capital markets of the FSU countries have a bright future. Slava Rabinovich, the Managing Partner of Diamond Age Capital Advisors, believes that in 12 to 18 months some outstanding returns could be realised in the Uzbek securities, and at a somewhat later time - Kyrgyz securities. But all of this is not today; but rather for the long term investor: these fertile fields hold great promise, hope and glory for a bright and prosperous future.
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Diamond Age Capital Advisors was founded by Slava Rabinovich, who began his career in the Russian securities market in 1996 at Hermitage Capital Management, western investment fund, and one of the first pioneers of the Russian capital markets. His company manages the Diamond Age Russia Fund (AUM exceed $23 million), and employs starkly different hedging strategies compared to most of other funds, while also showing strong performance results. Since its launch in February of 2005 Beta co-efficient of the Diamond Age portfolio averages around 0.42, and volatility - around 14%, while at the same time the RTS Index has volatility of 29% (annualized standard deviation of weekly returns). Diamond Age hedges the downside risk not only via shorting strategies and using derivatives markets outside of Russia, but also via broad diversification of the portfolio across asset classes, geographies, sectors of the economy, etc. As an example, the Diamond Age managers are using classic hedging strategy of western hedge funds (pairs trade): have "long" positions in the securities that they consider undervalued, and "short" positions in securities that they consider overvalued. One of the recent examples - long-short Vimpelcom vs. MTS. Another strategy, via diversification - investing in the securities of companies domiciled anywhere in the world, which have a business focus in Russia and other countries of the Former Soviet Union. These could be shares in a gold mining company Celtic Gold (Ireland), or, for example, in Nokian Renkaat (Finland), which has 40% of its revenues derived from sales in Russia. Diamond Age actualises meaningful returns in appreciating local currencies and fixed income instruments while shorting the overvalued US Dollar and long end of the US Treasury yield curve. Diamond Age also points out investment opportunities in Kazakhstan, Ukraine and other countries of the former Soviet Union.

...[description of long-only equity-only country-specific funds, and their performance during the sell-off]...

One should not invest in [such] markets without some "insurance". But, since hedging opportunities for large players, and mostly for the on-shore mutual funds, are very limited, it is worth asking yourself: is it not better, in line with changing times, to find yourself a manager, who has much more room to maneuver?
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Diamond Age is very proud to announce that its Managing Partner, Mr. Slava Rabinovich was selected as on of the TOP-11 money managers in Russia for the January 2006 edition of Finance Magazine.

His picture appears squarely on the cover alongside luminaries of the largest buyside firms in the country such as William Browder of Hermitage Capital Management and Alexander Branis of Prosperity Capital

One of the "architects" of the earliest Russian capital markets, Slava (a native of St. Petersburg who emigrated to the USA in 1988) returned to Moscow from New York after receiving his MBA at New York University, Stern School of Business in 1996.

Slava held dual positions with the Hermitage Fund as head trader and assistant portfolio manager. Bill Browder and Slava together grew Hermitage from seed capital of $25MM USD to over $1B USD is less than two years, consistently beating the market during his tenure at Hermitage from 1996 to 2000.

Slava, an original pioneer of the Russian financial industry, in 2000 re-started the Renaissance Capital Asset Management business from the ruins of the 1998-1999 financial crisis, and then in 2001 went on to form a highly profitable "Hermitage Clone" with Russia's #2 largest bank (MDM Bank) called MCM Capital. Without meaningful backing from the large parent, Slava grew MCM from $7.5MM USD seed capital to nearly $200MM before setting out to found Diamond Age in 2004.

The poll was taken by Finance Magazine with a large, statistically significant number of investors, business journalists, and industry professionals. Diamond Age had no prior knowledge of Slava's inclusion, nor was it asked to cast a ballot. It is a reflection of over a decade in shaping, promoting, and developing the financial industry and the VOTE of CONFIDENCE from Slava's peers.
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"Wealth is owned and predominantly rests in the hands of young entrepreneurial and professional nouveaux riches residing in the major centres across the region," says Scorpio's managing partner Sebastian Dovey. "They are the engine room of future growth and they are already showing strong signs of interest in broader wealth management solutions." This young wealthy investor base could change the shape of asset allocation in Russia. Ted Wilson, a consultant at Scorpio, says that Russians with wealth of $1 million to $10 million tend to have their onshore wealth allocations 30% invested in domestic real estate, with 25% in domestic cash, 25% in offshore cash, 10% in domestic fixed income, and 10% in international real estate or emerging markets fixed income. Offshore wealth tends to be invested in Austria, Luxembourg, Switzerland and the UK. Increasing interest in venture capital and hedge funds by younger, more entrepreneurial wealthy Russians could push more money offshore.

"At present Russia's domestic hedge fund market is underdeveloped. John Winsell Davies is managing director at Diamond Age Capital Advisors in Moscow. He says that Russia has few pure hedge funds, but expects the market to grow. "Russian hedge funds are essentially loosely regulated limited partnerships domiciled offshore and, as such, their regulation and structure is not uniform. You could essentially run a long-only Eastern Europe corporate bond fund, and call it a hedge fund in Russia," says Davies.

He continues: "The great majority of Russian hedge funds are actually just long-only equity, oil sector, mutual funds that charge a 2% management fee and a 20% performance fee, similar to actual alternative investment structures in other markets. In the extreme, many of these funds are simply replicating the broad Russian market by running quasi index funds that have all the characteristics of a synthetic RTS mirror portfolio while charging a hedge fund type call option on the Russian market to the investor, which comes to the manager for free."

As investors become more familiar with the concepts of hedge funds, they will demand proper hedge funds in Russia or will simply put their money elsewhere.

Addendum: Diamond Age invests both long and short in 24 sectors, 27 currencies, and trades on 26 primary global exchanges from the NYSE to the Hang Seng. Davies: "As long as the core business focus is in the one-directional, irreversible transfer of wealth, power, and influence from the FSU to the rest of the world's developed markets; we are likely active in the names or aware of the opportunities. Be they derivatives, currencies, interest rate instruments, stocks or bonds (both long and short), we are global opportunists dedicated to powerful wealth creation at HALF the broad equity market RISK."

© Euromoney Institutional Investor Plc

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