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Bill Browder of the Hermitage Fund tells the story of how he got started as a deal-maker right after college as well as how he came close to losing it all in 1990s post-Soviet Russia.
I’ll provide a bit of background so that you understand the video better.
Looking for Growth Opportunities in The Sale of the Century
This is a story for your “If it sounds too good to be true” file.
After the collapse of the USSR in 1991, the greatest theft in history unfolded as Russian president Boris Yeltsin raced to “privatize” the country’s wealth. Rather than going with a gradual and orderly privatization, which would allow overseers to spot and learn from mistakes, he recklessly chose to put everything on the auction block at once. If this wasn’t bad enough, at the time Russian natural and industrial assets were typically valued at 1% to 10% of their counterparts in the west.
What made an already bad process worse is that Yeltsin and other government officials then manipulated affairs so that a small group of opportunists could seize control of the jewels of Russia’s economy: oil & gas companies, industrials, and media companies, literally for pennies on the dollar. Yeltsin was driven in part out of a need to build a powerful alliance of wealthy businessmen who would then pay him back by supporting his second run for the presidency. Yeltsin’s first term was such an unmitigated disaster that the hated communists looked as if they might be voted back into power by the masses.
This small group of men, who became billionaires almost overnight, came to be known as The Oligarchs because they ruled Russia as a committee along with the inept and drunkardly Yeltsin. By the later 1990s, the damage was done. Practically all of Russia’s wealth was concentrated in the hands of two dozen, or so, oligarchs, while the rest of the population suffered greatly from the total economic collapse. At that point Russia had sunk to Third World status in terms of economic and living conditions.
In contrast, the oligarchs used transfer pricing scams to export natural resources, such as oil & gas and minerals, out of the country at Russian prices and then sell them at prevailing world prices for a quick 900% profit.Most of the profits then disappeared into Swiss bank accounts which paid for villas in Monaco and yachts.
Over the past month or so I have read two fascinating books about what happened in Russia after the collapse of communism. The first book was The Oligarchs: Wealth And Power In The New Russia by David Hoffman. I am just now finishing off the final chapter of Godfather of the Kremlin: The Decline of Russia in the Age of Gangster Capitalism by the late Paul Klebnikov. I say “late” because an unknown party executed him in 2004 in Moscow, as he was leaving his employer’s (Forbes) offices.
During the 1990s western bankers, businessmen, and investors tried to get in on the action of acquiring grossly undervalued assets in the former USSR countries. Most got badly burned by the oligarchs and wrote off billions in losses.
One of these men was Bill Browder, the Founder of Hermitage Fund. Bill, by his own account, was one of the first westerners to spot the seeming opportunity of the millennium to pick up assets selling at 90% or better discounts. For a few years, Bill was a master of the Universe rolling in dough. Then the Russians decided it was time to pull the plug on his gig. In the following talk, Bill tells his story. It’s packed with business lessons if you listen closely. Most importantly, the talk takes you inside the mind of someone who spotted a risky opportunity early on and went after it. Unfortunately, Bill was no match in the end for the gangster capitalism that ruled Russia in the 1990s.
This is a great talk riddled with good humor. (If you decide afterwards that you want to learn more about the oligarchs, read the two books above in the same order that I read them.)
account is the most dramatic and comprehensive yet… What makes this account both devastating and entertaining is the way Hoffman has pieced it together… he has read far and wide, and operated like a probing private eye.” (New York Times Book Review) “[Hoffman's] book may well be the most authoritative account we will ever get of the early days of the four true ‘oligarchs’… He describes and analyzes so well the methods by which money and power were grabbed in the new Russia.” (New York Review of Books) “One of the most vivid and well-researched accounts to date of this tumultuous period in recent Russian history.” (Newsweek) “Hoffman makes the tale of the men’s rise and fall a masterful blend of adventure and serious, informed analysis.” (Foreign Affairs) “In his devastating portrait of the so-called Russian oligarchy…Hoffman’s… account provides us with more than its share of instruction…Hoffman brilliantly shows how seemingly halting and insignificant acts finally culminated in changes in a whole society.” (Washington Post)”
About the Author
Based on hundreds of taped interviews with top businessmen and government officials, secret police reports, contractual documents, and surveillance tapes, Godfather of the Kremlin is both a gripping story and a unique historical document.
Paul Klebnikov tells the incredible story of Boris Berezovsky, a one-time Russian car dealer who assembled a huge–and illicit–fortune after the collapse of Communism. “This individual had risen out of nowhere to become the richest businessman in Russia and one of the most powerful individuals in the country,” writes Klebnikov, a respected reporter for Forbes. “This is a story of corruption so profound that many readers might have trouble believing it.” Yet Godfather of the Kremlin is a careful work of journalism in which Klebnikov documents the business dealings of a man who once bragged to the Financial Times that he and six other men controlled half of the Russian economy and rigged Boris Yeltsin’s reelection in 1996. Berezovsky survived both an assassination attempt and a murder investigation, and paved the way to power for Vladimir Putin. He and the other crony capitalists of post-Soviet Russia like to rationalize their deeds, writes Klebnikov: “Whenever I asked Russia’s business magnates about the orgy of crime produced by the market reforms, they invariably excused it by pointing to the robber barons of American capitalism. Russia’s bandit capitalism was no different from American capitalism in the late nineteenth century, they argued.” Yet nothing could be further from the truth: Carnegie, Rockefeller, and their peers transformed the United States into an economic superpower. Berezovsky, on the other hand, has “produced no benefit to Russia’s consumers, industries, or treasury.” It’s not that he didn’t have an opportunity. To pick one example among many, he took over Aeroflot when it had a monopoly position in a booming market. But the company barely grew, and instead experienced myriad problems. Berezovsky controlled many businesses, but he was a lousy business manager; his only authentic success–as an auto dealer–depended on collusion. His real skill is shady dealmaking, especially with corrupt government officials. That’s the way to success in modern Russia, as this well-told but troubling book reveals. –John J. Miller
On The Money: Eying Russia’s Economy
As the Saint Petersburg International Economic Forum approaches, economists are assessing Russia’s prospects. Does Russia have an optimum growth strategy?
Viktor Vekselberg is now the richest man in Russia. The founder of Moscow-based Renova Group, a closely held conglomerate that controls investments in energy, construction and mining, added $1.5 billion to his net worth yesterday after OAO Rosneft, Russia’s state-controlled oil and gas operator, agreed to pay $54.8 billion to acquire TNK-BP in the third-biggest oil acquisition ever.