The returns that have been seen on the growing number of Russian-invested offshore funds have made them the darlings of the emerging markets arena. Inside Russia however, the domestic mutual fund market is still very much in its infancy.

In January this year 11 money managers, including three foreign-owned firms - Credis, Pallada and Pioneer - were authorised to sell mutual funds to Russian citizens. At the time, a government spokesman said that they wanted the business to grow rapidly as they believed it was vital for economic development. Since then, growth has been less than explosive - total assets currently amount to just $38m - although the foreign contingent has expanded to include Troika Dialog and, most recently, Templeton.

Few doubt the potential - domestic savings at $140bn with an estimated $20 -$30bn tucked away offshore and perhaps double that amount hidden away under mattresses or the like. But a troubled banking system and a high profile tax office makes accessing this money difficult especially as many Russians have recently had bad experiences with a range of privatisation voucher funds while others lost money with MMM (described as a mutual fund but in essence a pyramid selling scheme).

Elizabeth Hebert, general director of Pallada Asset Management, agrees that the opportunity is huge," but admits that there are "barriers that we haven't quite solved yet". One of these is distribution - there is no retail financial intermediary structure in Russia. "The economy is growing and people are getting richer," she says, adding that "there is a strong desire to get into the equity market."

Pallada offers a fixed income fund to individuals with a minimum investment of $100 and an institutional fund (minimum $17,000). "There is a strong demand from institutional investors for professional management," says Hebert. "The problem is they haven't figured out how to get this without taking a direct stake - if they invest with you they expect to take half your company!" David Hunt"