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. Last Updated: 07/27/2016

World-Beating Fund Loses Manager




The best-performing international mutual fund of 1997, the Lexington Troika Dialog Russia Fund, has lost its lead manager with the departure of another top executive from the Moscow investment bank Troika Dialog.


Nancy Herring, one of several managers who ran the Lexington Troika fund, left her post as Troika's chief investment officer last week after leading the fund to an impressive 67.4 percent growth in 1997. She had managed the $140 million fund's day-to-day operations since late 1996.


Herring was quoted by The New York Times as saying she left over a contractual dispute, concerns about a conflict of interest within the Lexington Troika team and about the investment bank's new shareholder, the Bank of Moscow. Herring was vacationing and could not be reached for comment Monday.


Though Troika sought to play down any impact her departure might have on the fund, it has been the talk of a Moscow investment community already on edge over turmoil in Russia's markets at the end of 1997.


Herring departs the bank on the heels of two other top officials: Troika founder and chairman Peter Derby left in October after selling his stake to the Bank of Moscow, and Sergei Zenkin resigned soon after that to become director of investment banking at Merrill Lynch in Moscow.


A top Troika officer said Herring and Troika mutually agreed she should leave, chalking the departure up to personal conflicts.


"One of the reasons Nancy was leaving was personal communication, the relationships between the managers of the team," said Pavel Teplukhin, president of Troika Dialog asset management and a member of the Lexington Troika portfolio team. "Gavin Rankin was one of the members of the team she had problems talking to."


One source familiar with the Bank of Moscow purchase said Troika is planning to add new executives to its top ranks, a reorganization Herring may have found objectionable.


On Jan. 1, Rankin assumed Herring's role as the fund's day-to-day manager, the person responsible for deciding when to buy stocks chosen by the portfolio team, Teplukhin said.


Herring was quoted by The New York Times as saying she was the only Troika Lexington manager who knew fully the fund's investments.


"I made all of the decisions on the fund," she was quoted as saying. "The likelihood that any of the others knew even 20 percent of what was in the fund is in question."


Managers of Lexington Management Co., the U.S. fund adviser responsible for marketing Troika Lexington to U.S. investors, acknowledged that Herring's departure would cause concern among investors. But they emphasized that the fund has always been run by a group of experts including Rankin, Troika president Ruben Vardanyan and Lexington executives Richard Hisey and Lawrence Kantor.


"Anytime you have a portfolio manager leave, shareholders certainly are concerned about that, but that's why we've always emphasized a team approach on our funds so that no one person is irreplaceable or indispensible," Hisey said.


The Lexington Troika fund is the golden child among the 19 funds run by Lexington, most of which invest in equities. The company's Worldwide Emerging Markets Fund was down 14 percent year-to-date as of Dec. 24.


The Lexington Troika fund, meanwhile, was the top performer among U.S.-registered funds investing outside the United States, said Tricia Rothschild of the U.S.-based mutual fund monitoring service Morningstar Inc.


The Bank of Moscow's purchase of an undisclosed stake in Troika Dialog may be causing some Troika employees to consider leaving, said one Moscow banking analyst who asked not to be identified. The bank's majority owner is the Moscow city government.


"I would expect this to have a negative effect on morale," the analyst said. "Employees would have preferred to have been bought by a foreign investment bank. The Bank of Moscow isn't the worst of Russian banks, but it doesn't have the prestige of a European or American investment bank."


The Bank of Moscow did not return phone calls seeking comment Monday.


Herring added that she was concerned that Rankin's dual posts as director of Troika equity research and member of the Lexington Troika team created a conflict of interest, whereby Rankin would advise Troika clients on investment picks while competing with them as a manager of a mutual fund.


The U.S. Securities and Exchange Commission, which registers and regulates funds, never objected to Rankin's dual role, Teplukhin noted, adding that Rankin formally quit his role as director of research when taking on day-to-day management of the Troika Lexington fund.