Alfa-Bank - Alfa Group

to develop rapidly. This resulted in ayear-on-year increase of almost 30%in the volume of client orders throughthe company.Alfa-Bank’s U.S. operation, AlfaCapital Markets Inc. (USA) servicesclients in North and South Americafrom its offices in New York. AlfaCapital Markets Inc. (USA) providesbrokerage and investment services toa wide range of institutional clientsinvesting in Russia. Alfa CapitalMarkets Inc. (USA) is a NASD memberfirm and is registered by the SEC.Fixed IncomeSince the establishment of the roubledebt market, Alfa-Bank has maintaineda leading position among lead managersof fixed-income securities forRussian companies. In 2006, Alfa-Bankparticipated in the placement of 29rouble bonds for a total amount of RUR61 billion, 1.8 times higher than in2005. The largest issue organized byAlfa-Bank in 2006 was the OJSCMOESK rouble bond transaction ofRUR 6 billion.Alfa-Bank is a leader in arrangingCredit Linked Notes (“CLNs”). Withinthe framework of its GlobalRepackaging Program, Alfa-Bank hasplaced five issues of CLNs for Russianand Ukrainian companies. In 2006,Alfa-Bank took part in the preparationand placement of five issues ofEurobonds and CLNs for a totalamount of US $635 million, twice theamount as 2005.In 2006, Alfa-Bank was one of theleading operators and market makersin Russian government and corporatebonds. The share of client business inthe total volume of operations was relativelylarge. The market dealt withthe flow of volumes from foreign currencysovereign bonds and corporateEurobonds trading, to rouble-denominatedcorporate bonds, CLNs andLoan Participation Notes (“LPNs”). Inmany cases Alfa-Bank acted as bothlead-manager and market maker.In 2006, Alfa-Bank actively traded fromits own portfolio of promissory notesdenominated in foreign currencies,mainly those of emerging markets. Alfa-Bank also offered its clients access tothe debt markets of these countries andthe bond markets of the US Treasuryand the Group of Seven countries.In 2006, Alfa-Bank significantlyincreased the volume of trading in thedomestic market of rouble bonds. TotalAlfa-Bank turnover in the rouble marketin 2006 was US $5.2 billion, 50%higher than the turnover in 2005. Alfa-Bank maintained its leading position inthe turnover of corporate and sub-federalbonds at MICEX. Alfa-Bank’sincome on own and client operationsgrew steadily.Derivatives andStructured ProductsTrends in the Russian derivatives markethave been very positive. In the reportingyear, Alfa-Bank has significantlyincreased the volume of its operationson internal and external derivativesmarkets. This growth was achieved dueto a significant expansion in the spectrumof derivative instruments and services,especially in the area of financingsecured by Russian shares.Regulatory acts made it possible forAlfa-Bank to obtain access to a newcategory of participants. In 2006,equity options were in great demand,while client interest in foreign currencyoptions dropped. The equitylinkedfinancing business transformedinto a business of complexstructured products.Among the new clients are Russianmutual funds and companies thatmanage portfolios of wealthy clients.The number of international counterpartieshas increased. They signedISDA and other documents with Alfa-Bank for further development of thebusiness.Forex and MoneyMarketAlfa-Bank acts as a leading marketmaker on the Russian Rouble/U.S.Dollar foreign exchange markets.Total Alfa-Bank turnover for RussianRouble/U.S. Dollar transactions in2006 was US $300 billion, or approximately5% of the total Russian foreign-exchangemarket.In 2006, Alfa-Bank steadily increasedtrading volumes on the interbankmarket, reaching a total turnover ofUS $1.3 billion and a market share ofaround 15% by the end of the year.In 2006, Alfa-Bank established leadingpositions on the CIS and Balticcurrency markets. The economic integrationamong Russia, Kazakhstanand Belarus has enabled Alfa-Bank toincrease turnover and operationsprofitability in the Belarusian Roubleand the Kazakh Tenge.On the money market, Alfa-Bank continuesto occupy one of the top positionsamong Russian players.Aggregate daily turnover remainedhigh, reaching the equivalent of US $2billion by the end of 2006.Transaction volume on the roubledenominatedinterbank market comprisedaround 15% of the segment’stotal turnover.A lfa CapitalManagementAlfa Capital Management (“ACM”) is a fund manager with a highlyspecialized focus — Russia. ACM is Russian-owned and Russiabased,with a well-established and diversified portfolio ofgrowing and profitable businesses, embracing a range of mutualfunds, pension funds, trust management and offshore funds.Mikhail KhabarovChief Executive Officer of AlfaCapital Management“The year 2006 marked a turningpoint for Russia`s mutualfund industry. The volume ofinflows brought the marketplaceto a sustainable criticalmass. We are convinced thatthis is only the beginning of abroad process which will seethe establishment of a newclass of private investors inRussia. We plan to spur thatprocess and, with our clients,to be foremost among its beneficiaries.Our 2006 sales resultssuggest that we are alreadybeing rewarded for assemblinga superior team of professionals,and for the years of worknurturing quality investmentproduct.”www.alfacapital.ru2006–a yearof a New StrategyAlfa Capital Management celebrated its 10thanniversary in 2006 and in the same year a numberof strategic changes were implemented in theCompany. In September 2006 Alfa CapitalManagement adopted a new development programconsolidating the Company target performanceindicators for the period 2007-2011.The target indicators are the following: increasingassets under management up to US $10 billionand realizing market share of 10% of theRussian mutual funds market by 2011. In additionto the development of the retail sales areaof the business, trust management services forlarge private and corporate investors is anotherkey emerging business interest for Alfa CapitalManagement.Implementation of the Company’s new developmentstrategy has affected all aspects of theCompany’s activities. In the second half of 2006 anew management team upgraded the Company’sorganizational structure, created new departmentsresponsible for acquisition and retention oflarge private and corporate investors and implementednew investment products and services.In the period from September until December2006 the staff at Alfa Capital Managementdoubled and a new motivation system wasdeveloped and implemented in order to attractand retain a highly professional team. The newmotivation system gives wide opportunities forCompany employees to fully realize individualprofessional aspirations.Profitability Figures of Selected Mutual Funds Managed by Alfa Capital Management in 2006Mutual Fund 2006 Return %OEMF “Alfa Capital Stocks” 42.4%OEMF (Balanced) “Alfa Capital Balanced” 34.9%OEMF “Alfa Capital Bonds Plus” 14.9%OEMF (Bonds) “Alfa Capital Reserve” 6.3%IMF (Balanced) “Alfa Capital” 39.9%ACM's Assets under Management on 31 December 2006(in USD mln)State funds – 7.1Corporate clients – 24.8Institutional clients – 96.2Mutual Investment funds – 314.4Individual Trust accounts – 12.6Source: Company data32 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 33