Reflecting on a decade of investing in Eastern Europe and Russia

East Capital Eastern European Fund – Aivaras Abromavicius

Citywire Pan European Fund Selectors Forum Zurich, May 19-20, 2010

23 May 2010 2

Disclaimer

These notes should not be used as a basis for investment. Information and advice in this publication is based on sources that East

Capital deem reliable, but East Capital can under no circumstances be answerable for the totality or correctness of the information,

or for direct or indirect loss that can occur as a result of mistakes or discrepancies therein. Investment in funds is always associated

with risks. Historic yields are no guarantee of future yields. Fund units can go up or down in value, and there is no guarantee that

investors will get back all capital invested. As East Capital invests in foreign markets, currency fluctuations can affect the funds’

values. Fund information brochures can be obtained from East Capital.

Introduction

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23 May, 2010 44

East Capital

A leading independent asset manager specialising in

Eastern Europe and Russia, founded in 1997

5.7 billion USD in public and private equity

150 employees, out of which 37 investment professionals, 27 nationalities

Offices in Stockholm, Paris, Moscow,

Hong Kong, Tallinn, Oslo, Vienna and Kyiv

Diversified client base across segment and geography

with 450,000 investors from more than 60 countries

12 year track record, highly awarded funds

Independently owned and managed with founders and

main owners active at senior management level

23 May, 2010 55

East Capital investment vehicles

EAST CAPITAL

BALTIC PROPERTY FUND

EAST CAPITAL

FINANCIALS FUND

EAST CAPITAL BERING

RUSSIA FUND

EAST CAPITAL BERING

UKRAINE FUND

EAST CAPITAL BERING

BALKAN FUND

EAST CAPITAL

BALKAN FUND (SWE)

EAST CAPITAL

TURKISH FUND (SWE)

EAST CAPITAL

RUSSIAN FUND (SWE + LUX)

EAST CAPITAL

BALTIC FUND (SWE)

EAST CAPITAL EASTERN

EUROPEAN FUND (SWE + LUX)

EAST CAPITAL CONVERGENCE

EASTERN EUROPEAN FUND (LUX)

EAST CAPITAL BERING

CENTRAL ASIA FUND

EAST CAPITAL BERING

NEW EUROPE FUND

Private equity and real estateAlternative investmentsPublic equity funds (UCITS III)

EAST CAPITAL

POWER UTILITIES FUND

EAST CAPITAL

RUSSIAN PROPERTY FUND

EAST CAPITAL SPECIAL

OPPORTUNITIES FUND

0

10

20

30

40

50

60

2002 2003 2004 2005 2006 2007 2008 2009 2010

East Capital Eastern European Fund MSCI EM Europe Index

23 May, 2010 66

East Capital Eastern European Fund – Performance since inception

East Capital Eastern

European Fund

MSCI EM

Europe Index

Note: As of 31 March, 2010, in SEK

GOLDEN STAR 2004

DAGENS INDUSTRI AND

MORNINGSTAR SWEDEN

LIPPER FUND AWARDS 2006

LIPPER HOLLAND AND

LIPPER EUROPE

LIPPER FUND AWARDS 2007

LIPPER NORDICS, LIPPER FRANCE,

LIPPER AUSTRIA, LIPPER

NETHERLANDS AND LIPPER EUROPE

LIPPER FUND AWARDS 2008

LIPPER EUROPE, LIPPER AUSTRIA,

LIPPER NETHERLANDS,

LIPPER FRANCE

MORNINGSTAR AWARDS 2005

FD MORNINGSTAR

HOLLAND

LIPPER FUND AWARDS 2009

LIPPER FRANCE

23 May, 2010 77

East Capital

Russian Fund

RTS-Index

Note: As of 31 March, 2010, in SEK

East Capital Russian Fund – Performance since inception

0

500

1,000

1,500

2,000

1998 2000 2002 2004 2006 2008 2010

GOLDEN STAR 2001

DAGENS INDUSTRI AND

MORNINGSTAR SWEDEN

GOLDEN STAR 2003

DAGENS INDUSTRI AND

MORNINGSTAR SWEDEN

GOLDEN STAR 2005

DAGENS INDUSTRI AND

MORNINGSTAR SWEDEN

LIPPER FUND AWARDS 2008

LIPPER NORDIC

LIPPER FUND AWARDS 2010

LIPPER FRANCE

GOLDEN STAR 2006

DAGENS INDUSTRI AND

MORNINGSTAR SWEDEN

LA REMISE

DES PYRAMIDES

23 May 2010 8

East Capital Russian Fund

“The East Capital Russian Fund has returned 1,524% in USD

terms during the past decade (source Morningstar*), which is

561% better than the second best fund and 826% better than the

benchmark index RTS over the same period.”

Investment Team, Style and Process

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23 May, 2010 10

A dedication to research

23 May 2010 11

Traders (3)

Chief Economist (1) Quantitative Analysts (2)

Analysts (9)

Advisory Committee(7 internal, 3 external)

Portfolio Management Team (6)

One of the regions largest team dedicated to public equity – 24 investment professionals

23 May 2010 12

Long term approach with focus on convergence and domestic themes

Active stock-picking without index tracking

Strong local presence and in-house research based on frequent company visits

Broad portfolio diversification on all levels (country, sector, company)

Low valuations and high yield

Corporate governance

Core approach

Investment style

23 May 2010 13

Investment process

BOTTOM-UP Quantitative analysis

Qualitative analysis

Company visits

BOTTOM-UP Alternative ways to gain

exposure to a

development trend

Indirect exposure

Different type of shares

TOP DOWN Identifying right strategy

which are supported by

the long-term

development trends

TOP DOWN Macro-economic and

political analysis

Weighting

RIGHT COMPANY RIGHT INSTRUMENTRIGHT STRATEGYRIGHT REGION

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East Capital Eastern European fund vs. index– 7 of 8 years with outperformance (average 8.8% per year)

12,3%

68,8%

57,0% 56,1%

43,9%

31,9%

-69,9%

100,3%

-3,7%

65,4%

33,3%

47,8%

33,5%28,1%

-68,4%

77,5%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

2002 YTD 2003 YTD 2004 YTD 2005 YTD 2006 YTD 2007 YTD 2008 YTD 2009 YTD

East Capital Eastern European Fund MSCI EM Europe Index

Note: As of 30 December, 2009, USD

23.9% annualized performance since inception (USD)

0,00%

20,00%

40,00%

60,00%

80,00%

100,00%

120,00%

Jul-

06

Sep

-06

No

v-0

6

Jan

-07

Mar

-07

May

-07

Jul-

07

Sep

-07

No

v-0

7

Jan

-08

Mar

-08

May

-08

Jul-

08

Sep

-08

No

v-0

8

Jan

-09

Mar

-09

May

-09

Jul-

09

Sep

-09

No

v-0

9

Jan

-10

90-days rolling annualized volatility

GDUEEMEE Index MSCI EM E TR East Capital Eastern European fund

23 May 2010 15

Note: As of 21 January 2010, USD

East Capital Eastern European fund vs. index– Consistently lower risk

Reflecting on a decade of investing in Eastern Europe and Russia

23 May 2010 16

Observations after a decade of investments in Eastern Europe and Russia

Mainstream investment strategies still focused on blue-chips

– Research availability beyond large caps sparse

– Main growth sectors poorly represented in the index

Opportunities for active managers same as a decade ago

– Valuation discrepancies large between market cap segments

– Large discounts for selected names with double listings

– Preferred shares offer big discounts to ordinaries (and option for potential conversion)

Investors’ (and media’s) view on the region – mostly negative…

– Historically high discount on Eastern European equities compared to BRIC/GEM universe

– Significant upside potential of sentiment change

– A long term investment horizon pays off

23 May 2010 18

Source: Rosstat, VTB Capital

Sector breakdown of RTS index

Index still poorly captures main growth sectors

Sector breakdown of Russian GDP

O&G

Banks

M&M

Utilities

Retail

Consumer goods

Others

O&G

Financial intermediationM&M

Utilities

Wholesale, retail trade and pers servicesConsumer goods

Others

0%

10%

20%

30%

40%

50%

60%

2002 2003 2004 2005 2006 2007 2008 2009

MSCI Russia vs MSCI EM MSCI EM Europe vs MSCI EM

0%

10%

20%

30%

40%

50%

60%

70%

80%

2002 2003 2004 2005 2006 2007 2008 2009 2010e

MSCI Russia vs MSCI EM MSCI EM Europe vs MSCI EM

23 May 2010 19

Unjustified discount?

Source: Bloomberg

P/B discount P/E discount

The discount on “should“ be in the 10-20% range rather than 30-50%

Perspectives on the allocation to Emerging Markets

23 May 2010 20

0%10%20%30%40%50%60%70%80%90%

100%

MSCI AC World weight

Mcap share GDP share 2009

GDP share 2014

DM and EM in % of the world

TOTAL EM

TOTAL DM

Linear (TOTAL EM)

Linear (TOTAL DM)

Source: Bloomberg, IMF

0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

6,0%

MSCI AC World weight

Mcap share GDP share 2009

GDP share 2014

Russia and EE in % of the world

Russia

TOTAL EE

Allocating according to GDP, only investments to Russia

should increase 4-5 times in the coming 5 years

Russia and Eastern Europe

in % of the world

Developed Markets and Emerging

Markets in % of the world

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GDP per capita (USD)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Ta

jikis

tan

Kyrg

yz R

ep

.

Uzb

ekis

tan

Mo

ldo

va

Ukra

ine

Ge

org

ia

Arm

en

ia

Alb

an

ia

Tu

rkm

en

ista

n

B&

H

Ma

ce

do

nia

Aze

rba

ija

n

Be

laru

s

Se

rbia

Ka

za

kh

sta

n

Bu

lga

ria

Ro

ma

nia

Tu

rke

y

Ru

ssia

Po

lan

d

La

tvia

Lith

ua

nia

Hu

ng

ary

Cro

atia

Esto

nia

Slo

va

kia

Cze

ch

Re

p.

Slo

ve

nia

Ge

rma

ny

Sw

ed

en

US

2009F 2010F

23 May 2010 21

Despite strong regional development during past 15 yrs most catch up lies ahead in Eastern Europe

Source: IMF, World Economic Outlook, April 2009

Structural catch-up growth

Case study: What drove the Russian development?

Oil price

– Indirect effects are substantial

– Direct impact of oil exports is limited

Reforms

– Unlocking the potential in the private

sector

– Privatizations, corporate governance,

minority rights, bankruptcy procedures,

bank restructuring

Consumption

– Emergence of a new Russian

consumption class

– Most important component of Russian

GDP

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23 May, 2010 23

Magnit – a leading Russian regional retailer

Magnit Hypermarket, 11.000 kvm, Kamyshin, Volgograd

Leading discounter chain with a regional focus, established

in Krasnodar with first store opened in late 1998

Now 3318 stores in 1048 locations with 76.000 employees

Opened 636 new stores in 2009 alone and will add an

additional 500 in 2010

24 hypermarkets opened in 2007 – 09, will add an

additional 30 in 2010

Net debt / EBITDA 2010e: < 1.0

Market value of USD $ 7.8bn, share is up 70% from before

the crisis and 750% from the middle of the crisis (down

80% during the crisis)

29% YoY sales growth in 2009, 31% YoY growth expected

for 2010 (RUB)

Highest 9.5% EBITDA margin in retail sector

23 May 2010 24

Russian growth set to continue

Output

collapse

Average yearly

growth 7% from

low base

Assuming average

yearly growth 5%C

on

trac

tion

7.9

%

Source: Haver, East Capital

Russia in the next decade– Domestic demand likely to remain the key driver

Consumption still largest contributor

– Increased savings may curb consumption growth, but will

likely trigger higher investments

Investments likely to gain in importance

– Positive real interest rates may help the build-up of a

domestic funding base and local capital

– Availability of capital will increase investments in

modernization and much needed infrastructure

Net exports contributing less as imports are expected to

outpace exports

23 May 2010 25

Summary - key strengths & differentiating factors

A strong investment team with local language

skills and background

Local presence and sourcing information first

hand from companies

Combining proprietary fundamental research

with qualitative research

Company meetings to assess credibility of

management and identify risks

Strong network of senior advisors

23 May 2010 26

Enables an informational advantage and high conviction

Appendix

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23 May, 2010 28

Public Equity Team

PETER ELAM HÅKANSSON, Stockholm

• Chairman and one of the founders of East Capital. Head

of Public Equity Team.

• Previously held a series of senior positions at Enskilda

Securities in London, Paris and Stockholm. His last role

was as Head of Equities and Global Head of Research

• Fluent in Swedish, English and French

AIVARAS ABROMAVICIUS, Kiev

• Partner, Senior Advisor

• Formerly Head of Equities at Hansabank , the largest

Baltic Bank. Also worked three years as Head of Trading

at Brunswick Emerging Markets

• Fluent in Lithuanian, Russian, and English and

communicates well in Estonian.

JACOB GRAPENGIESSER, Moscow

• Partner, Senior Advisor

• Formerly analyst with Brunswick Emerging Markets and

also worked at Khanty Mansiysk Oil Corporation (KMOC)

in Moscow

• Fluent in Swedish, Russian and English

ANDRAS SZALKAI, Vienna

• Portfolio Advisor

• Covering Central Europe (CEE4)

• Formerly Head of Research at Erste bank in Hungary and

also worked as fund manager at Vontobel Bank in Austria

• Fluent in Hungarian, German and English and communicates

well in Swedish.

Adrian Pop, Stockholm

• Portfolio Manager

• Covering Balkans

• Worked for Accenture in Romania

• Fluent in Romanian, German, English and Swedish

Egle Fredriksson, Stockholm

• Portfolio Manager

• Covering the Baltic region and CIS

• Prior work experience from several Baltic companies,

including Philips Baltic and Phillip Morris Lietuva

• Fluent in Lithuanian, Russian, Swedish and English

23 May, 2010 2929

Fund information

Note: As of 30 April, 2010

USD EUR SEK USD EUR SEK

YTD Since Inception

East Capital Russian Fund 18.0% 26.7% 18.8% 1396.6% 1175.3% 1329.1%

RTS Index 10.2% 18.4% 11.0% 591.0% 488.9% 559.9%

East Capital Baltic Fund 23.9% 33.1% 24.8% 440.9% 362.0% 407.6%

Baltic30 Index 27.2% 36.6% 28.2% 186.5% 144.7% 168.9%

East Capital Eastern European Fund 15.7% 24.3% 16.6% 513.8% 304.6% 328.8%

MSCI Emerging Europe Index 7.6% 15.6% 8.4% 224.3% 113.7% 126.5%

East Capital Balkan Fund 9.5% 17.6% 10.3% 63.1% 52.0% 62.2%

MSCI Emerging Europe Index 7.6% 15.6% 8.4% 72.1% 60.4% 71.2%

East Capital Turkish Fund 15.2% 23.7% 16.0% 13.3% 2.1% 4.3%

ISE 100 National Index 16.2% 24.8% 17.0% 26.8% 14.3% 16.7%

East Capital (Lux) Eastern European Fund A 15.0% 23.5% -29.7% -23.3%

MSCI Emerging Europe Index 7.6% 15.6% -41.4% -35.4%

East Capital (Lux) Conv. Eastern European Fund A 10.9% 19.1% -32.6% -34.0%

MSCI Emerging Europe Index 7.6% 15.6% -20.3% -22.4%

East Capital (Lux) Russian Fund A 16.8% 26.4% -10.4% -11.4%

RTS Index 10.2% 18.4% -14.5% -16.8%

23 May 2010 30

Stockholm | Moscow | Paris | Oslo | Tallinn | Hong Kong | Vienna