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27 June 2018

Red Notice - a Salutary Tale


I’ve been catching up recently with some books that I should probably have read already. One of those is “Red Notice”, by Bill Browder, published in 2015. The book is the story of how Browder moved from being the largest foreign investor in Russia - through his Hermitage Capital funds - to the (self-styled) number one enemy of Vladimir Putin. 

I was initially a little sceptical of the this. After all, Hermitage Capital was massively successful in exploiting the opportunities presented by the voucher privatisation schemes - in the late 90s the best performing fund in the world, I believe - and then came crashing back to earth in the 1998 debacle. Subsequently, Browder began to rebuild it, at the time grateful for the strong presence of Putin at the top of the government, before unearthing fraud and corruption on a massive scale involving Putin, the bureaucracy of the state and a group of favoured oligarchs. The story seemed a bit of a switchback ride - success, failure, success, failure - and it seemed to me perhaps a tad far-fetched that one foreign fund manager could claim to be the number one enemy of the Russian president. And then there were the claims of torture and murder, the Senate hearings and the passing of the Magnitsky Act, the stated need to stay in the public eye to avoid the fate of Litvinenko; what increased my scepticism was the arrest that wasn’t really an arrest on an Interpol Red Notice in Spain earlier this year. Was this anything more than a convenient piece of pre-publicity for the upcoming film? After all, if the Russians really wanted terminal revenge, surely they could have done it by now?

Browder has an interesting background, with a communist grandfather who decamped to Stalin’s Russia in the 1920s, then returned to the US where he became the leader of the communist party and a presidential candidate in 1936 and 1940. After the Second World War, he fell out with the party and quit. Browder’s parents were also left-leaning, and he decided the only way he could rebel was to become a successful capitalist (bit of a reversal of the more common story, that one). But the call of Russia was great, and the book tells us how he was pulled in that direction, through various stages, and eventually established Hermitage. 

The first half of the book, which covers Browder’s childhood and education, and then the first success of Hermitage, is, frankly, a tad egotistical.  I was ready at that point to put it in the box with a stack of other books by investors which are mostly focussed on how clever the author is. But then, reading on, the story becomes much more compelling. Initial success came from understanding the value available in the voucher privatisations - that value is what disappeared in the 1998 fiasco. After that, what Browder did began to change; he analysed the value of Russian companies versus their ‘open-market’ share price and understood that things were not as straightforward as they may at first have appeared. Lots of us in the metals business have had some experiences of post-Soviet Russia, and things like this come as no real surprise. However, Browder and his colleagues did not just stop there; they made a point of publicising their findings about the genuine financial position of some seriously heavy Russian companies. This casting of light on a very shady pool brought them right into the focus of Vladimir Putin and his closest cohorts, culminating in Browder’s expulsion from Russia, and, more sinisterly, the death in police captivity of one of his legal team, Sergei Magnitsky. 

The last part of the book - the most powerful part, frankly - is the story of Browder’s fight, first of all to save Magnitsky’s life, and then, when that has failed, to try to bring his torturers and murderers to justice. He is a wealthy man, which helps to fund access to the right people in the US and the EU; the campaign culminates with the passing in the US of the Magnitsky Act, directly targeting those perceived to be responsible for Magnitsky’s death.

In the end, despite my initial misgivings, I found this book a very good read. It’s well-written, and, as I said above, it deals with a subject that has a direct relevance to the metals business: the corruption endemic in the Russian economy - which impacts on the resource business - and the rise of post-Soviet Russia as something like a kleptocracy. As somebody commented recently, in Soviet times, the inner circle were two or three times richer than the rest, and could take their holidays in Sochi; now, the factor is many hundreds of times, and they holiday in Courchevel, the Côte d’Azur and the Caribbean. But Magnitsky died for helping to shine a light on some of it, and - despite my initial scepticism - I suspect Browder will spend the rest of his life looking over his shoulder.

For those who haven’t yet read it, I thoroughly recommend this book; it puts a few things in perspective.


Red Notice’, by Bill Browder, is published by Transworld Publishers Ltd.    


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