Pharos Financial Advisors, a leading Moscow-based fund management firm, said on Friday that it has been granted a license by the Dubai Financial Services Authority (DFSA) to operate as an authorised firm within the Dubai International Financial Centre (DIFC).

Pharos, part of the Pharos Financial Group of companies and a specialist emerging markets fund manager, has opened an office in Dubai despite the collapse in Russian stock prices this year, becoming the first fund manager with a Russia/CIS focus to join the DIFC.

At this stage, the Middle East, rather than Asia, is a more obvious source of cash willing to diversify into Russian shares trading at distressed valuations, Kevin Dougherty, a Pharos portfolio manager, told FinanceAsia in an interview in Moscow in early September. Until now, most of the investors into the fund have been from Europe or the US.

Pharos Financial Group was set up in 1997 by Peter Halloran with seed capital from Soros Fund Management and CS First Boston, and currently runs three funds: a gas fund, its flagship Russia fund, and a small-cap fund, which are ranked first, second and third, respectively, among Russian funds year-to-date.

On the face of it, a negative return of 29.4% (to November 20) for the top-ranking gas fund is unlikely to bring potential investors rushing to PharosÆs new offices in DubaiÆs Indigo Tower. But the fund is up almost 4% this month, compared to a 34.2% decline in the MSCI Russia Index and a 27.4% drop in the RTS Index. The two indices have lost 77.4% and 75.5% respectively so far this year.

"Our move to DIFC was an easy strategic decision given our expectation that the need for quality asset management in the GCC [Gulf Cooperation Council] will grow substantially over the next decade," says Halloran. "Pharos intends to fill the niche as the market leader in emerging markets fund management. Already we have seen tremendous appetite from GCC investors for our Russian-focused investment opportunities."

Halloran has a pedigree as a pioneer in Russian financial markets which has given him guru status û and hence attracted the confidence of investors such as Soros. He drove CS First Boston's equity and fixed-income brokerage businesses in Russia and the CIS to the number one spot, having taken a leading role in the development of Russian capital markets since their inception in 1994. CS First Boston brought more than $8 billion to the markets through debt, equity and private placements, including Russia's first local IPO and more than $2 billion of privatisation deals. However, the bank was also a victim of the Russian domestic government debt default in 1998.

The DIFC is an onshore hub for global finance, which has attracted over 700 registered firms in three years. The firms benefit from incentives such as 100% foreign ownership, zero tax on income and profits and no restrictions on foreign exchange. The DIFC also bridges the time gap between London and Hong Kong.

Halloran praised the DIFC for making the process of setting up shop easy and added that the ôDIFC has established the highest global regulatory standards, which help to ensure our acceptance as a reliable participant in the capital markets of the GCCö.