Ru En

The idea of working shifts is awful

Ruben Vardanyan Troika Dialog Moscow School of Management SKOLKOVO UWC Dilijan College, Armenia Manager

Date: 7 March 2013

Source: Vedomosti (Internet version)

Why Russian entrepreneurs are good at creating one-off financial projects but not at producing consistent, global businesses.

Ruben Vardanyan headed Troika Dialog for twenty years. Last year the brand ceased to exist. In less than a year, Mr. Vardanyan will say goodbye to the investment business. In this interview with Vedomosti, he talks about what partnership with Sberbank has brought to the former Troika, his personal investments and plans to change the approach to philanthropy in Russia.

You have been working with Sberbank for a year now. What have you liked and disliked?

We had a very successful year for a number of reasons, both internal and external: the business grew, new opportunities arose, and the excitement that accompanied the integration subsided. The year seems like a victory song because the minuses, despite being unavoidable, were so insignificant in comparison to the pluses. I would divide it up into two themes: the former Troika and the situation in the industry. The investment industry is currently at a turning point. Last year was not an easy year in terms of external factors. In general, it was difficult to work in the market, the equities market in particular – trading volumes fell considerably and there was a minimal number of IPOs. The asset management business also hardly saw any new money. Every investment firm went through serious problems. At the same time, each quarter our business grew like a snowball rolling down a mountain. If you are working in an industry that is going through hard times but at the same time your company is improving at an exponential rate, all the drawbacks look trivial compared to the pluses.

Obviously, when looking back at the year it has to be said that we should have carried out the integration of Sberbank and Troika Dialog faster and more intensively. However, at such a massive organization as Sberbank, it probably would have been impossible to reach the necessary speed for making managerial decisions and level of readiness for change. The year was a very eventful one: besides Troika, Sberbank acquired Volksbank International, DenizBank, the Yandex.Money payment system, and also a stake in a joint bank with the French group Cetelem. The transformation of Sberbank, a Russian bank, into an international group made up of a massive amount of companies is a serious change in thinking. Now, in addition to Russia, the bank’s Central Office oversees business in other countries where the Sberbank Group is present. Troika’s addition to the Group led to some real changes.

Another important point is that Sberbank CIB is not a subsidiary of Sberbank and not part of the Central Office. Instead, it is a sort of new subdivision which brings together employees from the Central Office and former Troika. It has taken a great deal of time and effort for people at the bank to understand this. Many of the support subdivisions of the former Troika still do not feel that they are now part of Sberbank. As someone who has overseen many mergers and acquisitions, I can tell you that the first year always involves the two parties getting to know each other. Real changes only happen in the second year.

I must admit that we spent a protracted amount of time discussing the integration process and strategy for developing the wealth management block. It’s not the largest part of the Sberbank Group, but the Group still has some things to clarify – besides wealth management, the block includes mutual funds, venture capital investment, management of pension savings and life insurance.

In January 2012, we closed the deal for Sberbank’s acquisition of Troika and by July we had already announced the creation of Sberbank CIB. Within half a year we had worked out the conception for this block and merged the trading desks. This all took place without the usual door-slamming-I-quit conflicts that often accompany integrations. Troika and Sberbank employees who decided to leave did so either because they had different plans (including changing industries) or because they did not want to work in a major corporation. For example, Andrey Zvezdochkin moved to Aton because he wanted to build a retail network. This would have been impossible at Sberbank which already has 18,000 branches throughout Russia. Alexey Dolgikh’s decision to move to Geneva to work as a sales partner at Julius Baer was essentially his choice of which country to live in and which market to work in. Andrey Golikov decided to take a break after having worked at Sberbank for fifteen years. In my opinion, the success of an integration is measured by the number of employees who go over to competing companies to hold similar positions. To date, we have only had a few such cases. None of the top managers of the former Troika have gone over to our competitors. The second measure is how many people you have managed to hire and whether or not you had to promote them or increase their compensation. We hired a large amount of people, including from major international investment firms. They joined us because they believed in our idea and understood that we were a massive, transforming institution with good growth potential, a changing corporate culture and that we offered competitive compensation.

So to conclude my answer to your question about what I have liked and disliked about working with Sberbank, I can tell you that Sberbank is like another world with a different culture. It’s no better or no worse than Troika. To compare the two would be like comparing apples and oranges. Both are tasty fruits, but they are completely different things. At Troika there was a culture of partnership which manifested itself in the decision-making process and the way in which we interacted with each other. The Sberbank Group on the other hand is a vertically organized major corporation which employs over 280,000 people. It’s simply impossible to compare the two because they are different models.


Which model do you prefer?

It depends on what for and when.

For work.

As an investment banker, I am certain that Sberbank’s model is better suited to the current situation. Size does matter if you take into account what is happening in the global industry. Unfortunately, or perhaps fortunately, the universal banking model has beaten the specialized boutique investment bank model. In times of crisis and uncertainty, clients want to be sure that they can get more products and services from one place and that the government will help should anything happen.

Will private investment banks appear in Russia again? It sounds like wishful thinking now because the entire market has been snatched up by state banks and major corporations.

This is like a conversation between the Chinese and the Americans – they both have different time horizons (laughing). People often ask me when the SKOLKOVO business school will become successful. I answer them: “We’ll see in twenty-five years’ time because it takes a long time for a business school to establish itself”. This is the same sort of situation. Although the financial industry has a long history, investment banks have not always been around and have not existed everywhere. For example, there are no investment banks in continental Europe. We currently have a mixed Anglo-Saxon-cum-continental model where everything is combined. Is there a place for boutiques in the financial industry? Yes, definitely. Will they once again play a significant role? I’m sure that they will. I’m not sure whether these will be investment banks, brokerage firms or institutions that focus on specific products. Those will be the new realities of the industry. Regulation is changing throughout the world and regulators are starting to increase the pressure. They may begin pushing to divide up banks. Are you aware that in the United Kingdom the regulator will demand that banks that break the rules must separate their retail banking business from their investment banking business? Ultimately, the two lines of business will be separate from each other. I think that this could happen within ten to twenty years. All processes take place in waves. The 70s and the 80s were a period of stagnation for American investment banks and brokerages. It seemed like the industry was going through its last days until Salomon Brothers came up with mortgage-backed securities. These sorts of periods happen rather often. It’s just that we don’t know the history of stock markets very well.

Troika was integrated into Sberbank during a period when oversight of banks was being dramatically toughened. Could this influence Sberbank’s investment business?

I’ll start with the big picture. Don’t forget that in Russia there is no such legal term as “investment bank”. According to Russian law, a bank is an organization that possesses a banking licence. That’s why we use the investment banking terminology that is acknowledged worldwide in a conceptual way. All the so-called Russian investment banks were brokerages which were regulated by the FFMS (Federal Financial Markets Service). The discussion as to whether a financial mega-regulator is needed has arisen partly because the FFMS has yet to construct an effective regulatory system or create a full-fledged brokerage industry. The crisis of 2008 showed that the state was not willing to help this part of the financial industry and did not consider it to be of any importance.

And that’s why the industry has become part of the state?

Why do you say that? NOMOS-bank and Otkritie merged without state participation. We’re simply going through a phase of universalization. Getting back to the issue of regulation, I repeat that it should be toughened. This will impact the investment banking business. It will become more difficult for certain lines of business to operate or they will become more expensive for clients. These are things that will happen regardless of whether a state-owned bank participates in a merger. The rules regarding offshore business will get tougher, which is very important for Russia. Previously, when talking about financial results of a company you always had to bear in mind that part of the business was located in Russia and part of it abroad. Again, everything was on a conceptual level.

Are things clearer now?

I think that we are moving towards a more transparent, more controlled system. And this is good for investors and clients. We work in a service industry and must be comprehensible to our clients. Western-style complicated instruments that are detached from the real economy and incomprehensible to investors will not benefit the economy in the long run.


What is your business comprised of these days?

For the past four years, we have been living with the feeling that another crisis is just around the corner. It goes without saying that in times like these people are afraid of buying equities. Instead, they invest in gold or fixed-income products or simply place their money in bank accounts. What was Sberbank’s model? It’s an enormous financial institution which works with corporations that require financing and individuals who place money in bank accounts. But there are other instruments too: swaps, risk hedging, structured products and so on, i.e., everything that companies need in addition to loan products. Previously, these were all provided by other players. We added these products and services to Sberbank, which it didn’t previously have. That is where we achieved synergy. Therefore, the profit that was mainly made by Western banks when carrying out operations for companies that received loans from Sberbank has been redistributed. That is why most of our income now comes from fixed-income, currency and commodities operations (FICC) and structured products. Last year there were fewer share placements than we would have liked. Against that backdrop, Sberbank’s SPO was a good, positive exception as were a few other major deals such as MegaFon’s IPO, the secondary offering by Globaltrans and Phosagro’s acquisition of a stake in Apatit.

How much is most of your income – 30%, 50%, 70%?

FICC generates 60-70% and 10-15% comes from equities. This is normal under the current circumstances. However, there’s a degree of cyclicity in everything. For example, in 2005-2007, people viewed bond traders with disdain – the general view was “what exactly are they doing there, catching those pips?” As late as spring 2008, FICC instruments were sources of amusement or pity for equity traders who were making piles of money. The business divisions of the former Troika are now working in close cooperation with Sberbank’s Department of Corporate Clients (DCC). The DCC services around 4,000 clients, has an annual turnover of over $500 mln, and is the gateway for establishing relationships with major Russian corporations and financial institutions. For us, this is essentially access to unlimited opportunities for doing business.

What portion of Sberbank’s corporate clients started off as borrowers and later became clients of the Investment Banking Department?

Not a large amount, less than 10%. At the moment, there are several hundred such clients. Although the DCC has around 4,000 clients. So the potential for growth is enormous.

You said that the main changes will take place in the second year. Do you already understand what you will do in terms of closing or enhancing divisions?

Not one division will be closed. That would be unnecessary. On the contrary, we consider that there are opportunities to develop services, products, areas of business and that it’s possible to expand our geographical presence. A different matter is that we will have to wrap up the integration – support divisions have to be integrated in addition to the business side. Furthermore, we need to finish integration at Sberbank CIB in terms of working with major clients. That is, we need to fully integrate the client managers and lending divisions, the teams that provide investment banking and global markets services, as well as those offering structured products and research. We need to complete the work on asset management and private banking and also the retail business which involves a few thousand people who previously sold GM products at Sberbank’s regional branches but now work at Global Markets. Besides this, we see opportunities for working with the Global Markets Division at DenizBank. It’s obvious that the most interesting emerging markets in Europe are those of Russia, Turkey and Poland. We occupy leading positions in two out of the three.

Do you have any specific plans such as opening new offices in Turkey and Poland?

There are no plans for Poland yet. First of all, Sberbank needs to “digest” the acquisitions that it has made. In Turkey, we already have DenizBank, and as I said, we will consider how to achieve the maximum possible synergy with them in the capital markets. To be honest, Sberbank CIB is not anchored to any particular location – we are a global division that works in international markets: London, New York, Istanbul, Kyiv, Nicosia, etc. We operate everywhere and our activity stems from those structures which Sberbank or the former Troika already had in place. For example, in London and New York our business is built around the Troika platform.

The second part of the deal for selling Troika depends on financial results, to which Sberbank makes a big contribution by providing its balance sheet, brand name and so on. How is everything calculated?

From the outset we agreed that not all profit would go towards payments for the deal: only 50% goes towards the operating bonus. The rest goes to Sberbank. So the more money we make together, the more we all get out of it. Thanks to us, in 2012 Sberbank made a greater profit than the amount which they paid for us.

Without you they wouldn’t have generated that profit?

No. They would have had a different amount of profit from having grown organically. But without Sberbank we wouldn’t have been able to make the sort of profit that we did last year. Sberbank had three possible scenarios: do nothing and grow slowly; hire a new team and attempt to speed up growth; or buy Troika and immediately gain the possibility of achieving rapid growth. The difference between the profit that Sberbank would have made from organic growth and the profit that they actually made is the effect that we created by joining them.

So you’re saying that it doesn’t count towards settling the deal?

No, it is taken into account. Sberbank paid $1 bln for a company with capital of $872 mln – solely cash and liquid assets because I purchased the assets of KAMAZ and AvtoVAZ so as to avoid the additional complications of having to get them revalued. With the second payment it works out that the more Sberbank pays us, the more it earns. So there are no contradictions. The specifics of the deal and synergy effect mean that we have created a win-win situation.

Which company’s balance sheet now includes the blocks of AvtoVAZ and KAMAZ shares?

As I said already, I bought them with the money that I should have received from the deal with Sberbank. These assets remained on the balance sheet of the partnership of the former Troika, where I was the main partner. However, this did not entail any change in ownership in those companies.

How many people were in the partnership?

There were one hundred and twenty-three people in the partnership when the deal with Sberbank was made.

They also didn’t receive any money?

Everybody was paid except me. This was done to simplify things.


Let’s take a break by talking about your personal assets. Is it true that you own this building (Romanov Dvor)?

Partially, yes.

Who else owns it?

The private equity fund Romanov Property Holdings Fund which was created together with RD Group, the board of which is chaired by Gagik Adibekyan. The fund has a few other properties in Moscow.

Please tell us about what else you own.

I co-own many assets, both directly and via funds. For example, I hold assets in Armenia’s largest bank. I hold shares in several companies in Germany, Ukraine, and the U.S. My investment focus is rather broad, ranging from the internet and natural resources to alternative energy solutions.

Are you involved in alternative energy in Europe?

No, in America. Specifically, the company Joule Unlimited. It’s a pioneer in the field of producing liquid fuel from solar energy and was recognized as the world’s best biotech company by The Wall Street Journal in 2011. I am a member of its board of directors. I also have some interesting e-commerce investments – I invested in a company that is involved in online sales of fashionable clothing in Brazil, Indonesia, Africa, and Russia. When I invest I always choose to be a minority shareholder. To sum it up, my life’s philosophy is one of partnership. All of my projects are built on the principle of partnership.

Do you have any Sberbank shares?

I do.

Is it a large holding?

No. And I purchased them a long time before Sberbank acquired Troika.

Are you planning to add to them?

I don’t manage my portfolio. My portfolio manager makes the decisions.

Why is that?

I just don’t have the time. It’s a myth that I sit at my desk and stare at stock quotes. Also, managing my portfolio could lead to a conflict of interest.

But your portfolio manager probably calls you up and says “Well, should I buy?”

He doesn’t call because that would distract me.

What benchmark yield have you set for him?

(Laughing) Well he’s trying hard. It works out to around 20-25% per annum, but not always.

That’s a very good result, considering that we’re talking about the Russian market.

I’ve been working in Russia for a long time. And not just in Russia – in Ukraine, Kazakhstan, Armenia and outside the CIS too.


Why do you invest globally? Is it an interest, for diversification, or something else?

Let me explain. If we put aside Sberbank CIB, then you can see that the rest of my work is concentrated in the following areas. There are projects that I make money from by investing in real estate funds or private equity funds in Ukraine, Armenia, Russia, Germany, the U.S., and Indonesia. There are a few companies in which I do not hold shares, but are still interesting to me – NOVATEK, Rosgosstrakh, SIBUR and so on. I play a rather active role in developing these companies by sitting on their boards of directors. Besides this, I have a small but important business that I separated from Troika Dialog back in 2002. This is my multi-family office, i.e. providing wealth management for a number of families. There are other areas that I operate in – the SKOLKOVO Moscow School of Management and related projects such as the Skolkovo-Nanotech venture fund. In the immediate future, I plan to create a research center as part of SKOLKOVO which would deal with philanthropy, passing on the heritage of Russia’s first generation of affluent individuals, and developing ideas for creating a charity industry for the middle class.

If you look at my charity projects you will see that they all have a multiplier effect. You have probably heard about our cableway in Armenia (the longest cableway in the world, it runs from Halidzor to the Tatev Monastery – Vedomosti). Previously, the villages located next to the Tatev Monastery were virtually cut off from the outside world. Thanks to the cableway, we were able to connect them to the world and provide a continuous flow of tourists to the monastery. As a result, new hotels opened in the nearest town and jobs were created. The project has become self-sufficient in terms of operating costs. Projects like the Wings of Tatev cableway or SKOLKOVO have a timeframe of 20-25 years and are carried out by a large number of partners. Besides SKOLKOVO, there are other educational and research projects: I’m part of the international advisory boards of three business schools in Japan, China and Brazil; I head the Institute for Emerging Market Studies (a joint project of SKOLKOVO and Ernst & Young) and am the Chairman of the Editorial Board of BRICS Business Magazine.

All of my projects are aimed at making connections. This is precisely what I’m best at – unifying large numbers of diverse and talented people in order to create things that have value and are a benefit to others. For example, the Wings of Tatev project brought together a multi-faith group of a hundred and twenty people from eighteen countries. Together we set up a cableway that has transported 139,000 people over the past two years. The project to open the Dilijan international boarding school for teenagers in Armenia in 2014 involves many famous people from different countries and ethnic backgrounds, not just people of Armenian origin.

Why don’t these people want to deal with the problems faced by their own countries? It would be interesting to know their motives. Why are they investing money in a school in Armenia rather than solving their own problems?

There are indeed very many serious problems in the world. In Russia for example, over 700,000 children live without parental care. This is a larger amount than in the period following World War II. All the same, people donate money to other charity and educational projects which they also consider to be important. Besides meeting basic needs, you need to be able to see that something has a future.

My friends from various countries hear about projects like SKOLKOVO, the rebirth of the Tatev Monastery or the international school in Dilijan. They like what they hear and want to participate by donating money, be it $10,000, $100,000 or several million. The most important thing is that they are taking part. They’re donating money for an idea that they think has the potential to become a success story. As Russia has not seen many ambitious charity projects successfully completed, my experience and reputation are also important. I don’t think that anyone else in Europe over the past twenty years has been able to raise $500 mln for a charity project focusing on education, invest the money and achieve a good result. One of the reasons why people participate in such projects is because many of them are tired of donating money that goes nowhere.

We live in the era of globalization, a time when one of the most important skills is the ability to understand and embrace foreign cultures without losing your own cultural identity. The school in Dilijan is a vivid example of this sort of international cooperation, both between donors and students. We expect that in the first year, children from approximately thirty countries will come to study at the school. Dilijan is an international educational project that goes beyond a single country and for students it opens up a path to the world’s best universities, in the U.S., Europe or Asia. What we’re trying to do is make connections between people who will possibly influence the future of the world. Everyone who takes part in the creation of the Dilijan international school believes in the importance of the idea that new leaders will grow up who are capable of changing the world and who will know each other because they studied together. This is also important for ensuring the safety of the world in the future.


Well that’s great. But how will you select the many geniuses who will influence the world?

That is not the point. There is a system called United World Colleges which was set up fifty years ago and includes twelve educational establishments throughout the world that are selected via a network of committees in one hundred and forty countries. Every year it provides scholarships to U.S. universities for one hundred of the UWC’s top graduates. These schools are among the places where Ivy League universities look for future students. For example, Atlantic College in South Wales (The Times called it “the most exciting experiment in education since the Second World War”) is the only British school that representatives of Harvard and Yale visit in order to select entrants. We were in the province of Trieste, Italy, home to one of those twelve schools – the United World College of the Adriatic in Duino. Two hundred students from ninety countries study there. A girl from a small mountainous town in Armenia attended school there. When she was selected to study at the UWC she was sixteen and could hardly speak English. Two years later the very same girl (who by then could speak English fluently) was accepted by one of the top American universities. The UWC system doesn’t just seek out talented children who will be provided scholarships, it also looks for those with active lifestyles.

But isn’t everyone active as a child?

Yes, but in different ways. Some children simply go to school, whilst others do more, for example, take part in KVN1, go in for sports, have an interest in theatre or undertake some social responsibilities. Our school is currently going through the process of joining the UWC. We have developed an extensive program for awarding scholarships and grants to talented and creative students. Our goal is to make high-quality international education accessible to young people regardless of how much their parents earn. The Dilijan international school is a charity initiative that has a construction budget alone of over $120 mln.

How will you select children for your school?

By using roughly the same criteria that I mentioned earlier. It’s very important that they want to do something. Also I should add that children will enter our school from the age of thirteen and not seven2. It will be easier to select them because by that age their personalities are already developed. Although it’s true that seven-year-old children and those even younger are often surprisingly mature. You have probably heard about an experiment that was conducted in Stanford in 1970 (this experiment is described in detail in Joachim de Posada’s book “Don't Eat the Marshmallow”). Some four-year-old children were each given a marshmallow and told “You can have the marshmallow now or you can wait 15 minutes and get another marshmallow”. After this the children were left alone. Some of them ate their marshmallows immediately, others didn’t. These children were checked up on forty years later. The percentage of those who became successful was 2.5 to 3 times higher in the group that didn’t eat the marshmallow immediately. Those people already had willpower by early childhood. Getting back to what I do at Dilijan and SKOLKOVO: the idea is not to export the best minds, but instead to import them. It’s very important for foreigners to come and study here rather than our children leaving to study in British schools.

What about the SKOLKOVO success story – is it true that the ill-fated $245 mln loan intended for construction of the campus is once again being refinanced by Vnesheconombank?

Yes. That decision has already been made.

What keeps forcing you to find a different creditor?

The loan provided by Sberbank in 2008 was given to us at a difficult time and also under very tough conditions when the interest rates for dollar loans exceeded 10%.

It’s a sensitive topic for you, but many people thought that this was a loan to save Troika.

Yes, some people did write that, although it isn’t true. The loan was obtained solely to finish off the construction of SKOLKOVO. I was one of the people who pledged their property and gave guarantees to secure the loan. The entire loan went towards building the campus. Not one kopeck could have been spent inappropriately, all the more so since I was not the only one who gave guarantees. Other founders like Leonid Michelson, Chairman of the Management Committee of NOVATEK, also gave assurances. I’ll say it again: whether or not a project like SKOLKOVO is a success only becomes clear twenty to twenty-five years later. It is not intended to turn a profit although it must be commercially viable. The school is already generating operating income, which is a unique result given the scale and timeframe of the project. The amount of income generated is reaching $60-70 mln. However, it is simply not possible to pay off the construction costs using the school’s operating income. Other methods must be employed. That is why Vnesheconombank’s decision is very important. Although the conditions for the refinancing are in line with the market, they are a lot more comfortable and better suited for what is an institution for development, and not simply an ordinary commercial project.

And what will happen in five years’ time?

We will repay the loan with the help of fundraising and other commercial activities. In the past all of the money raised has come from the pockets of the eighteen founders. Now we are looking to switch to a title-based donation system where lecture halls or libraries will bear the names of donors.


It’s noticeable that you are more willing to talk about your own projects than the investment banking industry. Is your plan to leave the industry in 2014 still in place? How long do you intend to work at Sberbank?

Our mutual obligations expire at the end of this year. We plan to wrap up the integration before January 1, 2014. Sberbank is an interesting story – it’s an enormous institution that is currently transforming itself and is a unique combination of size and potential. However, I want to leave investment banking operational management behind and focus on other projects such as being a minority shareholder, partner, and advisor. I’m sure that I can be very useful in those positions, including as a part of the Sberbank Group.

Have you ever been involved in corporate conflicts whilst acting as a minority shareholder? Or are you so good at choosing projects that you manage to avoid conflict?

Well, like any person I have my fair share of failures. The thing is that my percentage of successes is higher. I don’t like corporate conflicts and because of that I have never taken part in them. When they occur I leave the project and simply take whatever profit or loss I had.

Will the final payment for the deal with Sberbank also take place prior to January 2014?

No. It will happen before May 2014 in accordance with the results that we achieve for 2013.

Will the partners who have already left the company receive something from the second payment?

Yes, they will receive a partial amount.

Are you against early payment?

I have no problem with early payment. Sberbank CIB’s financial indicators are growing partially due to the active use of the opportunities of the Sberbank Group. These opportunities have significantly broadened our horizons and brought us many new clients. The integration is happening at a rapid pace and the more it progresses, the harder it is to calculate the former Troika’s contribution to Sberbank CIB’s results, which in turn determines the size of the payment. This is slowing the integration down. Early payment would speed up the integration and although the amount paid for the second part of the deal would be smaller, payment would be performed earlier.

In that case, how would the amount be calculated? Would it be divided by a smaller period?

No, there will just be a fixed figure. I don’t know how much. There will also be a bonus pool. If you look at our net profit for 2012, it’s immediately apparent that we had a healthy year compared to our competitors.

Who are your competitors besides VTB Capital?

Western banks. And not just them – we compete in a few areas with Otkritie, Alfa-Bank and others, although it’s impossible for them to compete with Sberbank in every field.

What about Renaissance after its ownership change? Have you talked to Stephen [Jennings] since the deal?

No, we haven’t talked. Stephen Jennings is a prime example of how foreigners can build businesses in Russia.

But was he actually successful? In the end he lost it all.

He came here as an ordinary manager with nothing. He then built a business from scratch and developed a diversified company that worked rather effectively in the pre-crisis environment. Imagine a Russian citizen moving to New Zealand and building a business there! Stephen and I were both trying to do the same things in parallel to each other. He had his own path and I had mine. Unfortunately, for different reasons, we didn’t entirely achieve what we had set out to do. I worked according to the principle of partnership (namely by forging a strategic alliance with Standard Bank), whilst he operated alone, aggressively, and in the hope that the market would experience big growth. In the end, when it was time to make a decision about how to continue developing our companies, Troika chose the more appropriate partner – Sberbank. Our achievements show that we made the right choice.


Herman Gref recently proposed to make an amendment to a pending law3 in order to allow government officials to keep money in foreign subsidiaries of Russian banks. Did you have a lot of those sorts of clients at Troika? Do you have many of them now?

There are no officials among our clients. Otherwise problems could have arisen with Western regulators. There were clients who transferred money to us to manage, but that’s a different model. I’ll explain this using a specific example. Let’s say that a client has an account with a Swiss bank. The client decides to transfer $1 mln for us to manage. He credits this amount to a brokerage account (not a bank account) at a Cypriot investment company (not a bank). At the same time, he is able to manage his portfolio. It is simply a trust if a client transfers money for trust management purposes. It’s not the same as holding an account with a foreign subsidiary. So you didn’t formulate the question correctly. The people about whom you speak are not our clients.

What about relatives of officials?

They could have been our clients. However, the sums of money you have in mind are rarely seen in the stock market. In general, people want to save those amounts rather than try to multiply them.

How much money do those in the public sector take out of the country?

I don’t know. I think that a lot is removed – tens, maybe even hundreds of billions of dollars. Various estimates claim that over the past twenty years $500 bln have been taken out of Russia. Next you can try to guess how much of that money resulted from corruption. The experts think that a rather large amount of corrupt money is involved.


You spend a lot of time talking with investors. What is their biggest concern at the moment? What do they ask you about?

Investors say “We like it in Russia. Here you can make good money. Every country has its problems. There’s no single place where it’s easy to invest”. Russia has two problems that they are very worried about. Contrary to how it may seem at first glance, we are not talking about corruption or politics. Firstly, investors are concerned about the low liquidity of the stock market and that large amounts of shares are concentrated in the hands of a few individuals. Secondly, they are wary of uncertainty. The rules of the game are changing too fast and the level of unpredictability is extremely high. Investors don’t understand when and for what reason punishment is meted out. You could run a red light nine times without incurring any consequences and then have your car confiscated for an unknown reason when you cross through on a green light. The Russian market’s margin is even higher than that of the Chinese market, especially for industrial investors, although not portfolio investors. Nevertheless, investors are spooked because they don’t understand why everything is so inconsistent and done on such a personal level. The lack of a properly functioning legal system is a similar problem. Courts make contradictory rulings in different situations. In Russia, the system depends on individuals rather than institutions and this creates many problems for foreign investors.

Aren’t they worried about the worsening relationship between Russia and Western nations?

Of course they are worried – some more than others. Fortunately, the world is now multipolar. This has made our lives both simpler and more complex at the same time. For example, bad relations between Japan and China don’t necessarily prevent one country from investing in the other. It’s a two-sided process. Obviously everyone looks at each other with caution, but this doesn’t stop business from happening. For example, the majority of Russia’s neighbors regard it with fear and hostility yet this does not prevent them from striving to become part of its economic orbit. They understand that it’s easier to live with Russia in the fold.

Is privatization only worth carrying out in Russia?

I’m a person with pro-market views, but judging by the experience of other countries, I can say that miracles don’t happen when it comes to privatization. Someone will have to make sacrifices if we want to create a new market and attract more foreign investors to Russia. The government must create infrastructure if it wants to turn Moscow into an international financial center where foreign investors will buy stocks. The majority of investors buy stocks on foreign exchanges not because there are limitations on buying them here, but because it is either inconvenient to buy here, interest is lacking to buy in Russia or banks advise against it because it is also easier for them to work in London. Someone has to take the first step otherwise the situation will never change. It would be a different matter if privatization were to be carried out to pay workers’ salaries or to fill a budget gap. We are in a different situation. The government can afford to say: “We are ready to sell three to five companies at a small discount because as the owner of the companies, profit is not the end in itself. But by doing this, we will create a mechanism that will enable us to attract more investors to Russia”. Russia is unique in terms of its consistent inconsistency. We are woven from contradictions. Our provincialism and narrow-mindedness are not in line with the imperial scale of what we’re doing. And our tremendous creative energy and innovativeness amazingly combine with our inability to concisely set forth processes. We have a superior ability to adapt, yet at the same time consistently take actions that shorten our lives. We commit terrible sins and then go to church in order to pray for forgiveness as if it were a formality. We often make half-hearted or ill-considered decisions and only think about the consequences later on. We want to turn Moscow into an international financial center but at the same time we allow court rulings to be passed which make it more complicated to defend forward transactions in court or which cause serious damage to the long-term investment industry, which is vital to the future of Russia as a financial center.

Do you believe in the financial center project?

On the whole, I am a big optimist. As a person who has implemented or helped bring to fruition a number of projects that no one believed in – be it the creation of an independent investment bank in Russia, the foundation of a unique business school for Russian and foreign students, or the creation of the first civil aircraft since the fall of the Soviet Union using an international corporation as a basis for this – I can say that Moscow has an enormous amount of advantages which will help it to become an international financial center. However, this won’t happen by itself. To capitalize on the advantages, we will need a systematic approach and a strong inner desire to carry out our plan. Also, I think that Moscow could become an international financial centre because there are only a few cities like it – the others being New York, London, Shanghai, and a couple more. With all due respect, the cities outside of that group are not on the same level in terms of energy, possibilities for business, and the amount of money going round. I have been travelling to Davos for a number of years now and for the past few years the same thing has been discussed: when is everything going to fall apart? It just can’t go on any longer! Many people predicted that in 2012 a global economic crisis would take place that would dwarf the 2008-2009 crisis. People even talked about the end of the world. Nothing happened. There are a lot of sore points in the world. I think that people are so frightened that soon everything will go very wrong that they have psychologically exhausted themselves by waiting for disaster. There are a lot of positive things, and on the whole people want to think positively. In my opinion, 2013 could be a very interesting year for everyone, including Russia. For example, a possible review of our investment rating. Despite the fact that the growth rate of our economy is slowing and the pension, judicial and other systems are experiencing big problems, Russia has enormous chances to make a breakthrough. Today, the spread between the value of equities of Russian companies and those of foreign companies from the same sectors is high. You can talk about Russia’s shortcomings over and over again, but that spread is still skewed. It’s perfectly clear that investors need to be sent specific signals so that they finally decide that it’s wrong. You could be completely confident that Russia had a good chance to continue growing economically, yet nevertheless fail to seize that chance – this has happened to us many times before.


For a long time you have been saying that you wanted to create a charity industry that also includes the middle class so that people like us could donate 1,000 rubles of our salary each month and actually know where the money goes…

Yes, that is the crux of my idea. Donors will know what their money is being spent on and will be able to decide whether or not to support a specific initiative. The activity of the foundations and organizations that make up this industry will be fully transparent: reports detailing expenses will be sent to donors on a regular basis.

Let’s say that we want to donate money under your name. How do you intend to launch such projects when the government is increasing the pressure on non-profit organizations?

I don’t plan to be directly involved in charity. I want to create a mechanism that will bring together your desire to give money to a good cause and the people who honestly want to help and can help. For many years, we have been helping the Podari Zhizn (Gift of Life) foundation. This isn’t just material help – we have also provided them with expert advice on how to develop methods for raising money and how to manage their affairs. In today’s Russia, you often come across charity foundations that have good initiatives but lack the necessary knowledge, management skills and fundraising systems. It’s very rare that a respected and famous person also has a good infrastructure. On the other hand, you have people who donate money but don’t completely understand what their money is going towards. My idea is simple: for example there will be twenty charity foundations that you can donate money to. Having selected a foundation and made a contribution, you will receive an annual report which specifies how much money was raised, how the proceeds generated from donations were spent, when, and in what amount. You will be able to say: “I don’t like what they’re doing with my money” and then withdraw your money or transfer it to a different foundation. I am trying to create a system that will allow participants to vote, including with their money. This is necessary in order to set up channels of feedback between the organizations that receive and the people who give. By withdrawing money because they don’t like how it is being used and don’t want the income generated from their 10,000 rubles to go to a particular organization, people are exercising the best method of influencing the organizations that receive money. Charity organizations will then understand that they need to be accountable to their donors. Therefore, transparency and reporting are essential if we are to bring back people’s trust in charity organizations. I am trying to create a mechanism that would ensure that you feel comfortable donating your money and that the people who receive it would be responsible for using the money since they would have to inform you about how every single kopeck was spent.

What percentage of Russian charity foundations is actually involved in charity as opposed to something like laundering money?

I haven’t looked up every foundation, but for convenience’s sake they can be divided into three big categories. There are foundations which launder money or misuse state money. Then there are those which have good intentions but lack the methods required to realize their ideas. Finally, there’s the third category – foundations which actually work. Russia lacks discipline when it comes to implementing ideas. So many noble intentions and good beginnings die in the “foundation pits” of frozen construction projects. We have a great deal of those “foundation pits”. And the problem is not just in the “structures”, i.e. the projects. In everything there’s a certain incompleteness. It’s true that in the last five years the situation has changed dramatically: many genuinely good, worthwhile and well thought out foundations have been created. And in that sense, things have considerably improved in Russia, despite the economic crisis.

Once I was offered a position at a charity foundation. The salary that they proposed was one and a half times more than what I was making at Vedomosti at the time, which shocked me.

I am all for professionals working at charity organizations and I believe that they should be compensated accordingly. It’s a separate industry. I have said before that at SKOLKOVO we are discussing with a Swiss bank the idea of teaching philanthropy as a subject in order to facilitate the gradual creation of Russian philanthropy specialists. It’s a big problem that we don’t have enough qualified managers, lawyers and accountants who could properly service the charity industry.

Well, lawyers worked for free for the people of Krymsk.

We’re talking about different projects. There are several types of charity. Situations like Krymsk or Beslan require one-off actions. In such cases, volunteering works best of all. This is where you personally help to solve a problem by spending time and effort or donating food and clothing. These are projects with a limited time frame. There is another type of charity. For example, your acquaintance’s child is ill and everyone who knows him donates money to help pay for an operation. Again this is one-time help and is not systematic. You know the people who helped. They were the ones you could get through to. The third type is foundations such as the one Chulpan Khamatova runs, or similar ones which raise money for specific goals. Once this money is spent, the fund has to raise money all over again. Finally there’s the fourth type. This is the type of charity that I talked about earlier in this interview and that doesn’t yet exist in Russia. You donate money to be managed. In other words, instead of spending your donation of, say 10,000 rubles, on addressing a specific goal, what is spent is the income generated by managing your money (and that of others). Those sorts of funds will be able to generate around $5-10 bln. I consider the charity industry to be important for Russia because it is one of the elements needed to help restore trust in society. We live in a country where the overall level of trust is very low. Nobody believes anyone. Depression has become a state of mind – people are afraid to believe in things and as a consequence they get disappointed. In all areas of life a high level of trust is a key foundation for a country’s future. The other foundation is long-term planning. When you plan 20-40 years in advance, you begin to look at everyday decisions in a different light. I compared the planning horizon of Russia’s leadership with that of other, more developed countries. Unfortunately, our leadership has practically no long-term plans. In Russia this isn’t just a problem of government. When discussing any sort of plans our society generally lacks the understanding that long-term goals should be the starting point. There should be some sort of development scenario that looks at least twenty years ahead, if not more, so that we can pass on to our children our business interests, wealth, and legacies. But there’s nothing like that – neither long-term plans, nor ideas for passing on heritage. It’s as if we are only living for the moment, as if that’s how it will be forever.

Is it possible to exempt charity money from taxation?

In my opinion this isn’t necessary right now. Unfortunately, we live in a country where many “creative” people are able to find “four hundred relatively honest ways of making money disappear”. We have many good intermediaries but few steady businessmen. Those enterprising people start using any concessions in order to concoct new schemes. That’s why until we have restored trust, it is better to pay all your taxes than receive benefits. Although there are examples of resourceful people using those benefits to their advantage, for some reason, Russians are some of the greatest scheme-builders, intermediaries, and manipulators in the world. But they lag far behind in terms of building consistent, sustainable business that is capable of competing on a global level. In our country people even rob in a thoughtless way! They live for the moment without even giving a single thought about what will happen tomorrow and build schemes for distributing income based on that. Living to the maximum and living for the moment is how I would characterize life in Russia. One of my foreign colleagues compared Russia to the Far North where people work in shifts: they arrive, work for a few weeks, make good money and then go on vacation and spend their earnings in a different place. The idea of working shifts is awful. It gives the impression of a life devoid of joy, which is the basis of everything. Therefore, we must change if we want to continue to live in our country and not live out of suitcases all the time, and if we truly see a future for our children and grandchildren here. Long-term planning and trust are the two fundamental things that will help us overcome the current situation in Russia. We must restore trust in each other and create long-term projects. This is what will guarantee a healthy society.

Tatyana Voronova

Boris Safronov ________________________________________

1 Klub Vesyolykh i Nakhodchivykh (Club of the Funny and Inventive) – a Russian humor competition and TV show where teams compete by giving funny answers to questions and showing prepared sketches.

2 The age at which Russian children begin primary schooling.

3 A draft bill that proposes to prohibit government officials from holding foreign bank accounts.