To become really big, he got the franchise for TGIF. Now he has prime locations all over the place, and runs the biggest public restaurant company in Russia. His original concepts were replaced by a mass approach and he built a higher-end McDonalds type of chain. That is an example of a ‘roll-up,’ because he used a lot of pre-existing restaurant locations with ready kitchens, leases, etc. It is interesting that the ticker symbol for the stock is ROST, which means ‘growth’ in Russian.

Those are two examples of consumer stocks that have achieved very good results in the last few years, and both of them are relatively new to the market. Of course, the most successful company has been Wimm-Bill-Dann Dairy. It is based on the same idea of rolling up dairies and juice lines from pre-existing locations. Now the company is the biggest purveyor of fruit juice and yogurts, and it recorded significant growth last year.

Q: In your view, how would a global slowdown in commodity prices affect the Russian growth story? How dependent is the Russian economy on commodity exports?

A: Right now, everyone wants what Russia has. The Asian demand seems huge because there is very strong growth in the consumer sectors of India and China, where everyone wants to drive a car. There is high demand for commercial and residential buildings that requires steel, nickel, and many other commodities. When you add oil and gas to the picture, it really becomes huge, and Russia is the biggest exporter of energy.

There are always speculations about the bubble in that area, and I agree that the big question is how long this demand will continue. I think that nobody knows what is going to happen, but as long as the demand from the large developing countries continues, the trend for Russia is positive. The minute this demand slackens, however, the Russian economy will have a problem.

A recession in the U.S. would also affect the Russian stocks, mainly because of the panic. The recession, however, is an open question because the U.S. is still growing albeit at a slower pace. In addition, I believe that the U.S. is not that determinative for the Russian market, at least not in the way it used to be. Now the growth not only in India and China, but also in Taiwan and Vietnam, is becoming more important.

Taiwan, for example, is increasing the intensive cultivation to get higher yield grains and higher quality crops. That means that the Russian exports of potash and other fertilizers are very strong. One of our holdings, Ural Kaliy, had a fantastic year in 2007, up about 800% since we bought it. The stock represents 8% of our portfolio and is one of our biggest holdings, along with Sberbank, which is also a high-growth consumer stock. This is the largest bank in Russia that also got into mortgage lending, retail lending, auto lending.

Q: Does that mean that, instead of worrying about a possible slowdown in one area, you try to figure out the next winner and move before the others?

A: Typically, I am a buy and hold manager. I am not trying to make trading profits or to time the market. We are not trying to prejudge when things have peaked. We do have target prices and we do take profits but, in general, before we replace a stock, we have to feel that there is something more attractive.

Q: What is your approach towards portfolio construction? Do you follow any benchmarks?

A: Typically, we hold less than 40 positions that we select from about 100 or 110 investable companies. Our benchmark is the RTS Index, which consists of about 50 companies, but as a market cap index, it is very heavily weighted towards oil and gas. Gazprom accounts for almost 50% of the Russian market in terms of capitalization and is the third largest company in the world. As companies from other sectors develop and grow, however, Gazprom, Lukoil, and the other behemoths should get smaller weight in the index.

Q: What kind of risks do you perceive and what is your strategy for minimizing them?

A: With the significant improvement of the corporate governance, the accounting, the transparency, and the integrity, we do not see a lot of currency and corporate governance risks.

On the surface, however, there is substantial political risk. For example, 2007 was a very bad year for public relations between the U.S. and Russia, mainly because of the nuclear-tip missiles. The U.S. admits that it had made a mistake not consulting with Russia beforehand, but Russia overreacted and the tensions remain. So, the communication is not well done in Russia as it doesn’t have paid lobbyists, doesn’t know how to play that game yet and, therefore, pays a price. That’s the reality and also a political risk.

There is also a liquidity risk that we handle through limiting our positions in the second and third tier stocks. If this was a hedge fund, we would be able to take more risks, but as a public company with redemptions, we have to stick to the liquid blue chips and ADRs. Overall, I believe that the main risks are related to politics and fund liquidity, not the currency, corporate governance, and financial market risks.