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Russia's short season

There has never been a better time to launch a hedge fund in Russia.

"There has never been a better time to launch a hedge fund in Russia," declares James Fenkner, former research chief at Troika Dialog in Moscow. "Corporate governance and legal structures that are clearly underdeveloped, along with the great economic potential of companies, make a discriminating long-short strategy the right one for Russia." After six and a half years, the 39-year-old Seattle native has left Troika to set up Red Star Asset Management, one of the few Russian funds that shorts domestic stocks. (Fenkner's work at Troika earned him accolades as one of Russia's top analysts; see this year's All-Russia Research Team, page 56.)

Red Star begins operations this month with eight employees, including two high-profile defectors from Troika: former chief investment officer Tim McCarthy and Tim Seymour, who was president of Troika Dialog U.S., the brokerage's New York­based sales arm. The fund will begin with $100 million under management -- close to half of it supplied by Ritchie Capital, a money manager based in Geneva, Illinois -- and the ability to borrow a little more than twice that amount. Red Star will focus principally on Russia's 50 biggest stocks.

Fenkner expects short positions to make up about 20 percent of the fund's portfolio, but he and his partners will be able to boost that to as much as two thirds of invested assets. Says Fenkner, "What's great about being a hedge fund manager is that you don't always have to be a cheerleader."