Tuesday, 31 July 2007

Russia’s league of financial all-stars

Financial News: Focus on Russia

Jason Corcoran in Moscow and Ben Wright
30 Jul 2007

Russia is booming. The Ritz Carlton this month opened its first hotel in Moscow, which serves what is thought to be the most expensive breakfast in the world for $350 (€252). It costs a minimum of $10,000 to book a table at the most exclusive nightclubs in the city on a Saturday night and the price of a five-room apartment near the Bolshoi Theatre is $7m.

A five-year boom in the oil market, record numbers of initial public offerings and a high growth rate have combined to make the Russian capital markets among the hottest in the world.

Mergers and acquisitions business was up 65% last year on the previous 12 months, while debt issuance rose more than 80% and equity volumes trebled. There is no sign of a slowdown.

The present cycle is less than a decade old. Most western investment banks and fund managers left the country following the financial crisis in 1998. Some are creeping back. Consequently, individuals with western training, coupled with local knowledge, are in short supply.

A war for banking talent has been raging for 18 months, with millions of dollars being paid for the top executives. Financial News highlight the 20 most influential figures in Moscow’s financial community.

Igor Artemyev
Head of the Federal Anti-Monopoly Service

Much of the responsibility for turning Russia’s anti-monopoly commission into one of the country’s more effective market regulators rests on the shoulders of its director, Igor Artemyev.

The career politician, who once played rugby union in the former USSR league, has proved he is willing and able to tackle opponents considerably larger than the FAS.

The regulator has been involved in high-profile cases where Russian domestic producers and state-controlled entitles, such as savings bank Sberbank, have been held to account.

A member of the liberal Yabloko party co-opted into the cabinet in 2004, Artemyev believes the FAS is on its way to becoming a European-style regulator.

Bill Browder
Founder and chief executive, Hermitage Capital Management

Browder founded Hermitage Capital Management, which specialises in Russian equity investments, in 1996 and has become one of the most influential investors in the country. But he is not allowed to set foot in Russia after his visa was cancelled by the Government.

He believes this was a result of his lobbying for better corporate governance. Hermitage has diversified into other emerging markets and Browder’s influence in Russia is bound to be diminished if he is not allowed back in.

Before starting Hermitage, Browder worked at Salomon Brothers, where he managed proprietary investments in Russia. Before that, he was a management consultant with the eastern European practice of Boston Consulting Group in London.

Michael Calvey
Co-managing partner,
Baring Vostok Capital Partners

Private equity has yet to take off in a big way in Russia but, as and when it does, Calvey and Baring Vostok Capital Partners are best positioned to reap the benefits. In March, the Russian private equity partnership raised a new $1bn (€720m) fund, the largest of its kind in eastern Europe.

Calvey moved to Russia in 1994 after working at the European Bank for Reconstruction and Development and Salomon Brothers. He set up the first fund managed by Baring Vostok, which was wound up after returning four times its original $160m investment.

Demand from European and US investors for the new fund is understood to have reached $2bn but the private equity firm capped its size at half that level because the mid-cap firms it will target, with annual turnover of $20m to $200m, are expected to grow at great speed.

Arkady Dvorkovich
Head of Presidential Experts Directorate

Dvorkovich is Russian President Vladimir Putin’s foremost economic adviser and analysts believes he holds more sway over him than Finance Minister Alexei Kudrin, or German Gref, Minister of Economic Development and Trade. Dvorkovich is an economist with degrees from Duke University in the US and Moscow’s State University and New Economic School. He has been serving the Russian Government in different roles since 1994.

In 2004, Dvorkovich was appointed head of the Presidential Experts Directorate, which advises Putin in exercising his constitutional powers. He has also been responsible for initiating and promoting key economic reforms.

Mikhail Fridman
Chairman, Alfa Capital

Fridman is one of the few remaining oligarchs from the Boris Yelstin era to retain a prosperous business in Russia. With college friends, he set up consortium Alfa Group, which controls Alfa Capital, its retail operation Alfa Bank and investments in oil, retail and telecoms.

The Ukrainian has ambitions to transform Alfa Capital into a bigger firm and recently hired Edward Kaufman from UBS as head of its investment bank, with the promise of a salary of $7m to $8m a year.

Ian Hague
Co-founder, Firebird

Since the launch of Firebird’s first fund in 1994, Hague and his partners have seen and done it all: they have participated in Russia’s voucher privatisation programme and purchased oil companies at the equivalent of four or five cents a barrel. Few people have more experience of investing in the country.

Hague, with Harvey Sawikin, manages Firebird’s four former Soviet equity funds. The Firebird fund and Firebird New Russia fund returned 60.8% and 50.4% respectively last year and are 90% invested in Russian equities.

The biggest funds are the Firebird Republics fund and Firebird Avrora fund, which is the firm’s only fund open to new investors.

Both funds have more than $650m under management and returned 69.1% and 50.5% last year.
Hague’s educational background is in Soviet politics and he studied Russian language and literature at Wesleyan University.

He speaks Russian and French and before co-founding Firebird, worked for the United Nations Secretariat.

Stephen Jennings
Chief executive, Renaissance Capital

New Zealand-born Jennings has become one of the most influential players in the Russian market since leaving Credit Suisse in the early 1990s to set up Renaissance Capital. Under his leadership, the bank has grown from a small broking operation in the Russian market, throughout the Commonwealth of Independent States and in sub-Saharan Africa.

Renaissance last month became the first local investment bank to top the Russian equity underwriting league tables, mainly because of its bookrunner mandate on VTB’s $8.2bn listing in May.

Jennings recently stepped back from day-to-day running of the Russian business, handing over responsibility to his deputy Alexander Pertsovsky as he focuses on the push into Africa.

Nick Jordan
Head of Russian office, Lehman Brothers

Lehman Brothers may not have much experience in Russia: the bank – with Goldman Sachs and Merrill Lynch – was one of the last to re-enter the Russian market following the August 1998 financial crisis.

But Jordan, a US citizen of Russian heritage, is believed to have close ties to the Kremlin and Gazprom.

Jordan was co-head of investment banking in Russia at Deutsche Bank and oversaw the creation of Deutsche UFG in 2005, when the German bank acquired Moscow-based United Financial Group.

Jordan’s brother, Boris, helped found Renaissance Capital and runs Sputnik Group, a private equity and advisory business.

Andrei Kostin
Chief executive, VTB

The former London-based Russian diplomat has transformed VTB from its Soviet-era obscurity financing heavy industry into a universal commercial bank since taking over in 2002. Kostin, who is believed to be close to Putin, has ambitious plans to continue the bank’s development following its recent successful $8bn flotation.

VTB aims to double its market share in the country’s consumer banking sector by 2010 and start a securities business in Moscow this year. Kostin, who is also a director of oil group Rosneft, has deep pockets to develop its London-based investment banking operation, having abandoned an idea to acquire a Russian company after fruitless talks with Renaissance Capital.

Andrei Kruglov
Chief financial officer, Gazprom

Kruglov pulls the financial strings at Gazprom, one of the world’s largest companies, which controls about a quarter of global gas reserves and has a monopoly on exports from Russia. The company is also expanding into energy retail operations in Europe. Gazprom’s management has repeatedly restated its ambition to become the world’s first $1 trillion company in seven to 10 years, from $252bn today. It announced last month that it made 613.35 billion roubles (€17.5bn) last year, nearly double net profits in 2005.

Vladimir Milovidov
Head of the Federal Financial Markets Service

Milovidov replaced Oleg Vyugin, head of Russia’s financial markets regulator, in May. Vyugin ran the FFMS from 2004 before resigning to join private-owned MDM Bank after his idea to create a super regulator to oversee Russian markets was rejected. Milovidov was an aide to Prime Minister Mikhail Fradkov and secretary of the Council on National Competitiveness and Commerce. He has regulatory experience, working as deputy head of the Federal Securities Commission, the forerunner to the FFMS between 2000 and 2003.

Milovidov is said to have kept a low public profile during his three-year tenure in government, and is widely expected to continue Vyugin’s efforts to bring Russia’s stock markets into line with international standards.

Irackly Mtibelishvily
Head of investment banking Russia and the CIS, Citi

Citi has been among the most successful western banks in Russia, thanks to its lending ability and relationships in the region forged through its retail operations and presence in the country since 1993.

Mtibelishvily has a long record in Russian capital markets and, unusually, has worked at the same group for nearly a decade. He joined Salomon Smith Barney’s Moscow office as a vice-president in 1998. He gained experience as a lawyer working in the London and Moscow offices of Clifford Chance, and advising on deals including inaugural eurobonds for the cities of Moscow and St Petersburg.

The bank topped last year’s debt capital markets ranking in Russia with 18 issues worth more than $3bn, well ahead of second-placed UBS, according to data provider Thomson Financial. It also won a prestigious mandate to advise on VTB’s listing.

Peter O’Brien
Finance vice-president, Rosneft

O’Brien joined Morgan Stanley from specialist Russian investment bank Troika Dialog in 2000 and earned his stripes working on some of the bank’s highest-profile deals in Russia. In 2005, he was appointed co-head of Russian investment banking.

O’Brien left Morgan Stanley last year to join Russian state oil group Rosneft to work on its initial public offering. In January, he was replaced as day-to-day head of the company’s finances by Sergei Makarov, a former senior manager at Russia’s second-largest bank VTB and head of the finance department of state arms company Oboronprom.

His new job is to focus on strategic issues, particularly mergers and acquisitions, and business restructuring. One of his first tasks was to bid for the assets of bankrupt Russian oil company Yukos at auctions between March and May, thus turning Rosneft into Russia’s biggest oil producer and refiner.

To pay for the assets, Rosneft borrowed $22bn, enough to wobble Russia’s currency markets and threaten the central bank’s inflation target.

Hans-Joerg Rudloff
Chairman, Barclays Capital

The former chief executive of Credit Suisse First Boston famously sent bankers Stephen Jennings and Boris Jordan to Russia to scout for deals in the early 1990s. The pair became involved in the state’s pilot voucher auctions and soon left to set up investment bank Renaissance Capital.

The German-born financier, who is also a director of oil group Rosneft, is expanding BarCap’s Russian business into one of the biggest in the country’s fast-growing debt markets. Parent bank Barclays is also developing its operation and can call on Rudloff’s decade of experience there.

Charlie Ryan
Chief executive in Russia, Deutsche Bank

Deutsche Bank has been buffeted by senior defections from its Moscow business but it has not dented the ambition of its country head and chief executive. Deutsche’s leading Russian rainmaker Nick Jordan left for Lehman Brothers and his investment banking co-head Ilya Sherbovich is leaving next year to start a boutique.

Ryan, who has been in Russia since 1991, is not unduly concerned, particularly as Deutsche retains high positions in the equity capital markets and M&A tables. He said: “I have seen this movie before.

Moscow is not a get-rich scheme, because you need to have all the pieces of infrastructure in place, like we do.”

Bernie Sucher
Managing director and head of global markets for Russia, Merrill Lynch

When Merrill Lynch hired Sucher in February to run its Moscow office, it was widely agreed the US bank had landed a big fish. Before joining Merrill Lynch, Sucher was chairman of Alfa Capital. Previously, he was a managing director and co-founder of Troika Dialog, one of the largest independent brokerage houses in Russia. Sucher has worked in Russian capital markets for 14 years and his contacts book is bursting.

He is the third head of the office in a short time. Last year, Mike Eggleton left to join Trust Investment Bank five months after his predecessor, Allen Vine, resigned to join Nafta Moskva, a local investment house. However, these departures were regarded more as the inevitable fallout from the Russian banking jobs merry-go-round than an indication of faltering strategy on the part of the US bank. Sucher has been charged with building a fixed-income, currencies and commodities business to work alongside the bank’s equity operations.

His experience at Alfa Group, where he was de facto head of the asset management business, led analysts to speculate that the US bank might make a push in that area, possibly through the acquisition of local banks.

Elena Titova
Co-head of Russian investment banking, Morgan Stanley

Morgan Stanley and Goldman Sachs have been swapping investment banking heads in Russia over the past couple of years. Last summer, Goldman hired Magomed Galaev, who had been co-head of investment banking for Russia at Morgan Stanley, for just six months. He had been working alongside Elena Titova, who joined the bank the previous February from Goldman.

Titova runs the office and has stolen a march on her former colleague, about whom rumours of another defection continue to circulate. Morgan Stanley has a longer recent record than its US rival, having made a more rapid return to the market after the 1998 financial crisis. It is one of the pioneers of the Russian initial public offering market and equity capital markets business continues to boom.

Ruben Vardanian
Chief executive, Troika Dialog

Vardanian has surprised market watchers by continuing to resist the overtures of Western investment banks keen to enter Russia’s booming capital markets. Troika this year postponed plans for an IPO until after Russia’s parliamentary and presidential elections next year.

As majority shareholder in Troika, Vardanian is estimated to be sitting on a fortune of more than $1bn and may find the temptation to sell irresistible in the not- so-distant future. He is also chairman of the board at state-owned Sukhoi Civil Aircraft and a director at oil group Novatek.

Mattias Warnig
Director, Dresdner Kleinwort

Dresdner rainmaker Warnig may have stepped back from day-to-day responsibilities as chairman of the Russian business but his influence on the German bank remains. Warnig, a former Stasi officer in East Germany, has known President Putin for a long time and is one of the best-regarded bankers in the country.

Though not working full time, he is available to Dresdner’s clients and his contacts are a vital asset.

Warnig is a board member of state-run bank VTB and Gazprom, where he may have had some influence over the recent decision by the energy group to form a carbon-trading venture with Dresdner.

Mattias Westman
Chief executive, Prosperity Capital

Westman’s Prosperity Capital has recently become the largest single foreign investor in Russian equities, following outflows at rival hedge fund Hermitage Capital Management. Prosperity, which has $4.5bn in funds under management, takes a less combative approach to its investment targets than Hermitage and has had no problems with the authorities.

Westman, a Swede who moved a few years ago from Moscow to London, travels often to Russia and is well plugged into the political scene. He is also co-founder and deputy chairman of the Investor Protection Association, Russia’s only corporate governance body.


James said...

It would seem important to me that Bill Browder can no longer enter the country because he had the bravery to ask Gazprom to improve its corporate governance. The punishment? A bogus tax evasion case against Russia's largest foreign investor.

Also it may be important to note that Matthias Warnig became good friends with Putin when he worked as a Stasi agent with the KGB in East Germany - which is how Dresdner has been drawn into the most scandalous Kremlin deals, such as the IPO of Rosneft based on stolen Yukos assets.


Jason Corcoran said...

hi James,
Thanks for you comment. A point on Bill Browder is a given. I think Warnig has denied on the record that he and Putin were chums in East Germany which may or may not be the case.

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