Risk is Worth the Reward: Brokerdealers Still Have Faith in Russia

Brokerdealer.com blog update is courtesy of Bloomberg Businessweek’s Ben Steverman.

download (7)For the past few years, only risk-taking brokerdealers have had the courage to invest their clients’ money into the Russian Market. Many brokerdealers have not been able to see what opportunity there was in Russia. Bloomberg’s Ben Steverman has been able to crack the code and found the opportunity.

On paper, there’s no good reason to invest in Russia right now. The country’s dealing with a collapsed currency, plunging oil prices, recession, conflict in Ukraine, sanctions, and a government that’s hard to predict. The MSCI Russia Index lost almost half its value last year, and those losses could continue in 2015 and even into 2016. On Monday, as fighting in Ukraine intensified, the ruble dropped another 2.3 percent against the dollar, to its lowest level since Dec. 16.

For the intrepid, the thrill-seeking, or the very wealthy, however, Russia still has an appeal. Since August, investors have poured $861 million into the Market Vectors Russia ETF (RSX), the largest U.S.-based Russia fund. “In investing, what is comfortable is rarely profitable,” according to investment firm Research Affiliates in a new analysis. “Investing in Russia now is definitely discomfiting, but it might pay off in the long run.”

Here’s the opportunity they see:

Investors are watching Russia’s inscrutable and unpredictable government for any signs that President Vladimir Putin might be ready to make nice with the West or reform the Russian economy. So far, no dice. But, historically the Russian government has been more “business-friendly and reform-minded” when oil prices are low, Bank of America strategist David Hauner said in a Jan. 12 research note. Oil under $50 a barrel could spur Putin to do something about Russia’s economy, famously unproductive and overly reliant on the energy industry.

Sanctions are depriving Russia of the foreign technology and capital it desperately needs, to the tune of $100 billion in capital this year, BofA estimates. But, Research Affiliates notes, those sanctions are “relatively mild” compared with those imposed on Iran, Cuba, or North Korea. And Russia still has relatively low debt and high currency reserves, while it continues to provide much of Europe’s energy. “Logically, this crisis should pass,” Research Affiliates says.

Finally, in exchange for the extreme risks involved with Russia, investors are getting some outstanding deals. The MSCI Russia Index’s price-earnings ratio is 4, compared with the Standard & Poor’s 500-stock index’s 18.1. Based on their valuation, Research Affiliates calculates Russian stocks could return 16.9 percent per year over the next 10 years, more than any other developed or emerging market.

Then again, the firm also expects Russia to be the second-most volatile market in the world during that time span, after Turkey. Investors may need strong stomachs for quite a while: Without reforms, Bank of America estimates Russia won’t fully recover from this downturn until 2019.

For the original article from Bloomberg Businessweek, click here.


Like Magic! Russian Hedge Fund’s Money and Boss Disappear

AR6040-001Brokerdealer.com blog update is courtesy of The Wall Street Journal’s Bradley Hope.

As part of the membership to Brokerdealer.com, members have free access to an investor database that offers access to many different types of investors including hedge funds. When picking your next investor, whether it be on a national or international level, be sure to pick an investor who you can trust and won’t lose all of the company’s assets like the Russian hedge fund, Blackfield Capital CJSC recently experienced.

Blackfield Capital CJSC was one of Moscow’s hottest hedge funds, hosting glitzy parties and embarking on ambitious plans to expand to the U.S.

The firm’s founder in 2013 even rented a Manhattan apartment for a record-setting price, according to a real-estate broker, and instructed his U.S. staff to buy a $300,000 sports car.

Now, the founder is missing, allegedly along with all of the firm’s assets, according to former employees, in an international mystery that has captivated Moscow’s investment community.

The firm’s employees didn’t know anything was amiss until mid-October, when three men charged into Blackfield’s offices in an upscale complex along the Moscow River in central Moscow, said people who were there.

The men, who didn’t identify themselves, said they were looking for Blackfield’s 29-year-old founder, , according to the people who were there.

But Mr. Karapetyan wasn’t in the office that day or the next, when senior executives explained to the staff of about 50 that there was no longer any money to pay their salaries, said one former senior executive and ex-employees. The executives disclosed that all the money in the company accounts—some $20 million, including investor cash—was also missing, they said. It couldn’t be determined whether investors were from Russia or other countries.

“Our CEO just…disappeared,” said Sergey Grebenkin, one of the firm’s software developers, in an interview.

Efforts to reach Mr. Karapetyan by phone, email and through associates and friends weren’t successful. Other senior executives didn’t respond to requests for comment.

Mr. Karapetyan hasn’t been accused of any wrongdoing. It couldn’t be determined whether the firm was still operating.

Interviews with more than a dozen former employees and executives at rival investment firms in Russia, as well as documents from the U.S., Russia and the U.K., provide a look at the firm’s demise.

Blackfield was launched in 2009 with plans to be on the cutting edge of modern markets. The firm focused on algorithmic trading, or the use of statistical analysis to detect patterns in the markets, on the Moscow Stock Exchange. By 2013, Blackfield traded as much as 2% of futures and options contracts on the Moscow exchange some days, according to former employees and rival firms. Several former employees said Mr. Karapetyan told them the firm once managed as much as $300 million.

For Hope’s entire Wall Street Journal article, click here.

From Russia With Love: BrokerDealer and Banker to Russia Billionaires

Andrey Akimov, photo courtesy of Simon Dawson/Bloomberg LP

Andrey Akimov, photo courtesy of Simon Dawson/Bloomberg LP

Brokerdealer.com blog update courtesy of extract from 24 Oct Bloomberg LP coverage by reporters Irina Reznik and Anna Baraulina

When he’s not cruising the streets of Austria in his gray Tesla Model S, Andrey Akimov can often be found behind a desk on the seventh floor of a nondescript office building just across the Moskva River from the Kremlin.

Two bullet-proof doors and one small sign are the only clues that this is the control center of a financier who’s helped turn some of Vladimir Putin’s closest allies into multibillionaires. For a man who honed his trade in the hushed back rooms of Vienna and Zurich during the Cold War and who is now, as friends say, the most secretive banker in a country run by a former spy, this is how it should be.

While Akimov, 61, hasn’t avoided sanctions against the lender he’s run for a dozen years, state-controlled OAO Gazprombank, Russia’s third largest, he has not been singled out personally. By contrast, billionaire Yuri Kovalchuk, the largest shareholder of Bank Rossiya, the 16th biggest, was blacklisted by the U.S. in its first round of penalties over the Ukraine conflict in March for being what the Treasury called a “cashier” for Putin. Akimov, who’s never appeared on a global rich list, owns about 0.2 percent of the bank, equal to $1.7 million of shareholder equity, company filings show.

Power Broker

Akimov occupies a key position in Putin’s intricate power system and the fact that few people know it is a tribute to his skill as a behind-the-scenes broker, said UBS AG (UBSN) Russia Chairman Rair Simonyan, who has known Akimov for decades. Simonyan, 67, joined UBS in January, after running Morgan Stanley (MS)’s Moscow office for 14 years and working as an adviser for eight months to OAO Rosneft (ROSN) Chief Executive Officer Igor Sechin, who was added to the U.S. blacklist in April.

“Andrey is able to maintain professional relationships with everyone in Putin’s inner circle and beyond, even though some of them won’t even talk to each other,” Simonyan said in an interview in Moscow. “These people accept his mediation, regardless of their attitudes toward each other.”

Akimov, a fluent speaker of English and, like Putin, German, has never given a media interview, according to Gazprombank’s press service. Putin’s spokesman, Dmitry Peskov, declined to comment on the president’s relationship with Akimov.

“Andrey is a very, very secretive man, even for a banker,” Simonyan said. “And Gazprombank is a very Russian bank. Foreigners wouldn’t understand it.”

When Akimov took over Gazprombank in 2002, it was little more than a “piggy bank” for managers of the world’s largest gas producer, with less than $3.8 billion of assets, Simonyan said. Now it has $96 billion.

For the full article from Bloomberg LP, please click here