Tools for hedging equity exposure became available in Russia in 2006 and 2007, a development that led to international banks setting up derivatives desks there. That meant fund managers could start sourcing put options on stocks and indices.

However, with annualised volatility of 50%, it's jolly expensive to short using index options.

"We think a Russian fund manager has to hedge to stand a chance of outperformance," said Kevin Doherty, portfolio manager at Pharos Financial Group, speaking on a panel at the AsianInvestor and FinanceAsia Russia Capital Raising and Investment Summit in Hong Kong this week. "There are still few funds in Russia that can call themselves classic 'hedge funds'."

Most Russian funds are heavily long-biased, and leveraged up to outperform basic beta returns.

Yet Pharos's flagship fund was up 25% for 2008, the year the Russian stock market tumbled by 31%. If you don't hedge, says Doherty, then the tendency of the Russian market to oscillate wildly from year to year means extravagant gains one year can be obliterated the next, before rebounding again.

Another panellist is Julian Mayo, co-head of portfolio advisory at Charlemagne Capital, which operates a Russia focused long/short strategy that has been running since 2001. Something else the firm has in common with Pharos is that its investors are found beyond the frontiers of Mother Russia.

Charlemagne's hedge fund is broadly market-neutral and seeks alpha by taking individual stock risk. 'We risk-manage the fund by keeping volatility to approximately 10%, which is about a quarter the level of market volatility," says Mayo. 'We have made money more than 50% of the time when markets have recorded monthly falls."

At its peak, the fund had assets under management of $250 million, but it was used as something of an ATM during the crisis as it did not impose gates, he adds, and got redeemed down to $50 million. Assets have now been rebuilt and the plan is to close the fund some time this year.