Case of Banned Investor Is Seen As a Test of Russia's Progress
Thursday, July 13, 2006
It speaks volumes about Russia that for most of the past decade the U.S.-born investor and financier William F. Browder was as welcome in Moscow as his grandfather Earl, longtime head of the Communist Party USA, was during the 1920s and '30s.
But in November, William Browder was turned away at the Moscow airport. Browder wasn't told why, but he says he believes he ran afoul of someone influential because of his outspoken criticism of Russian corporate governance. Since then, he's been unable to get a visa to return to Russia, even though his Hermitage Capital Management Ltd. has $4 billion invested in the country, making it the largest foreign institutional investor there.
Now, three leading U.S. senators -- presidential hopeful John McCain (R-Ariz.), Majority Leader Bill Frist (R-Tenn.) and Charles E. Schumer (D-N.Y.) -- have written a letter to President Bush urging him to make Browder's case an issue at the Group of Eight summit in St. Petersburg this week "to ensure that U.S. investments in Russia are secure." Although Browder is a British citizen now, the senators noted that U.S. citizens and institutions have more than $1 billion invested in his funds.
Russian President Vladimir Putin has been eager to use the G-8 meeting to highlight Russia's spot in the top tier of world economic powers. But Browder's case, the senators said, "reminds us that the path to a free society and an open market in Russia cannot be taken for granted," and they said Moscow "should either let Mr. Browder back into Russia or provide a credible explanation as to why it is denying entry to its largest foreign portfolio investor."
What makes Browder's case unusual, aside from his heritage, is that he's been -- and still is -- one of Putin's staunchest defenders. Even his own troubles haven't turned him bearish on Russia as a place to make money.
"I've always understood that Russia is a flawed country with arbitrary things," Browder said in a telephone interview this week from a hotel on the French Riviera. "That was the business opportunity. Because of the flaws in the country, the asset values were low. And in spite of the visa problem, if Russia today were compared with Russia 10 years ago, it is still a much better country."
"It's been on the transition from horrible to bad," he added.
Most observers see his visa battle as a measure of how bad. It has become a litmus test of how open Russia's political system is to criticism and how vulnerable foreign investors might be to corruption and capricious events.
"It's an extremely bad sign if he cannot go back," said Luigi Zingales, a professor of finance at the University of Chicago who has studied what he calls the "Browder effect" on Russian companies. "He was a force for good."
"The Russian economy is growing, so on the fear-greed continuum, people may be able to overcome something like this," said the manager of another U.S.-based fund with major investments in Russia, who spoke on condition of anonymity to protect his relationships there. "But it's yet another blot on Russia's continuing bad public relations."
A graduate of the University of Chicago (where his father taught mathematics) and Stanford School of Business, Browder joined Salomon Brothers Inc. in 1992 just as post-Soviet Russia was beginning privatization. The government had decided to hand out vouchers valued at about $30 each to every one of the 150 million Russians. Altogether, they were supposed to be exchangeable for 30 percent of Russia's state-owned industry, and they could be bought and sold without restrictions, even to foreigners.
"That meant that the entire Russian economy had a valuation of $10 billion, including . . . a third of the world's natural gas, 10 percent of world's oil, 10 percent of the world's aluminum and many other commodities," Browder recalled. "It was clear that this was an unprecedented investment opportunity."