The room went quiet. Everyone knew that Putin had been caught off guard. He let a couple seconds pass before uttering, «Please say it again. Who exactly was denied a visa?»
Catherine stood back up. «Bill Browder. He is CEO of the Hermitage Fund, which is the biggest investor in the Russian stock market. And I believe the prime minister of the United Kingdom might have discussed this with you today».
Putin frowned and replied tartly, «Well, to be honest I don’t know for what reasons any particular individual may be denied entry into the Russian Federation. I imagine that man may have violated our country’s laws».
That was it. When I saw this, I knew Blair hadn’t brought up my case, and that my visa wasn’t going to be reinstated. More importantly, if I translated this from Putin-speak into plain English, what he was saying was crystal clear: «We never mention enemies by name, and that includes Bill Browder. I am now instructing my law enforcement agencies to open up as many criminal cases against him as possible».
If you think this interpretation is paranoid or an exaggeration, it wasn’t. If anything, I wasn’t being paranoid enough.
22. The raids
After Putin’s remarks, my clients had their answer. Nothing good was going to happen in Russia. The next redemption date was August 25, and this time another 215 clients withdrew more than 30 percent of the assets from the fund. In my business this is what’s called a run on the fund, and like a run on a bank, once it starts it’s almost impossible to stop. Unless I could somehow pull a rabbit out of a hat, the Hermitage Fund was quickly going to be forced out of business.
I’d handled hundreds of ups and downs throughout my career. Stocks rise and fall often for no reason, and I’d had to develop a thick skin to absorb bad news and not lose confidence. I hadn’t lost confidence after the fund lost 90 percent of its value in 1998, and I was rewarded for sticking it out when the fund fully recovered.
But this time was different.
My whole professional life had been geared toward being an investor in Russia. I’d never thought about anything else. But now, since I could no longer operate in Russia, I had to think about something else. What were my options? I couldn’t imagine returning to America to compete against thousands of people just like me. Nor could I imagine setting up in a new place such as China, only to spend a decade trying to establish myself.
And I certainly wasn’t going to retire. I was forty-two years old and had fire in my belly. None of my options seemed attractive, and the more I thought about my situation, the more hopeless it seemed.
The fact that Hermitage was probably going out of business was even more upsetting for the people who worked for me. After all the excitement and impact from our activities in Russia, no one on our team wanted to disband and be forced to return to regular jobs at investment banks or brokerage firms.
As I pondered our strengths, it was obvious that we were good at finding undervalued investments. We were also experienced at protecting those investments from crooked managers. It seemed to me that we could take those two skills and apply them to other emerging markets.
I decided to put Vadim and four other analysts on planes to Brazil, the United Arab Emirates, Kuwait, Turkey, and Thailand to see if they could come up with interesting investing ideas. They met with representatives from the twenty cheapest companies in each country. They went to a hundred meetings, did serious analyses on ten companies, and ultimately identified three solid opportunities.
One was a phone company in Brazil that had a valuation of three times its previous year’s earnings, the lowest in the world for a telephone company; the second was a Turkish oil refiner that traded at a 72 percent discount to the asset price of other refineries; and the third was a UAE-based real estate company that traded at a 60 percent discount to its net asset value.
I began investing the firm’s money in these stocks and shared the analysis with my friend Jean Karoubi. I could always rely on him to be a good sounding board, and he had a much more positive reaction than I expected: «Bill, I like these ideas a lot. I think this is the type of business you should be developing more broadly».
He was right. My skills were as an investor, and they could be applied anywhere, particularly in countries that faced issues similar to Russia’s. I didn’t need to be in Russia to succeed.
As I shared these investment ideas with other clients, most had the same reaction as Jean. By the fall of 2006, my confidence had grown so much that I started drafting a prospectus for a new fund called Hermitage Global.
The plan was to have this prospectus ready in time for the World Economic Forum in Davos at the end of January 2007. There is no better place in the world to raise capital than Davos.
My fortunes had changed since my first foray there in 1996. I no longer had to sleep on the floor or linger in hotel lobbies hoping to meet important people. Since 2000 I had been a proper member of the forum and had been going every year since.
This time, I decided to bring Elena with me. She was in the first trimester of her second pregnancy, and I thought the interesting lectures and receptions of Davos would be a welcome break from looking after our one-year-old at home. We flew to Zurich and took the train to Davos, just as Marc Holtzman and I had done so many years back, and checked into the Derby Hotel. I began taking meetings almost as soon as we arrived.
As Jean predicted, investors were very receptive to Hermitage Global. On the second day, after going through the presentation with one of my old clients, he said, «Hey, Bill, are you going to the Russian dinner tomorrow night?»
«What Russian dinner?» I knew a large contingent of Russians were in Davos, but so many things were going on that I hadn’t heard about this event.
«It’s a big deal. All the main Russian officials will be there».
«I doubt they’d allow me anywhere near it», I said with a smile.
«That’s the beauty of it, Bill. It’s not the Russians who decide who goes, it’s the World Economic Forum. You can just sign up».
This was an intriguing idea. After our meeting, I headed straight for the computer bank where you can sign up for events. I logged on and, with several clicks of the mouse, registered Elena and myself for the dinner.
The following evening we arrived ten minutes early, only to find that nearly every table was full. We scoured the room and took the last two empty seats that were together. Each table was hosted by a Russian VIP, and as I looked around, I was appalled to discover that our table host was the CEO of Gazprom’s export division. I could not have found a more awkward place for us to sit. Hermitage’s anticorruption work at Gazprom was probably the catalyst that had led to my Russian expulsion, and here I was getting ready to have an elegant meal of veal escalope, rösti, and carrot cake with one of the company’s most senior officials.
The Gazprom executive and I spent the meal avoiding eye contact, and as dinner progressed, Russian officials and oligarchs took turns giving speeches. Each speech was more insipid, ingratiating, and full of platitudes than the last. The Russians have great skill in talking without saying anything, and this was on full display that evening.
Toward the end of the event, as silverware clinked and waiters came and went, there was a big commotion near the entrance as twenty tough-looking security men walked into the room, forming a mobile cordon around a small man. I couldn’t tell who it was until he reached his table — but it was none other than Dmitri Medvedev, the first deputy prime minister of Russia. Medvedev was running for president to replace Putin, whose second term would end in June 2008, and Davos was Medvedev’s first chance to present himself to the international community.