Since the beginning of the Russian invasion of Ukraine, several hedge funds have been very active. According to data for the month of March published in various media last week, the number of transactions in Russian or Ukrainian assets has been two or three times higher than before the war.
“I get a lot of calls from my old acquaintances in the hedge fund world asking if they should buy cheap Russian assets [à cause de la guerre]† I tell them it would be like buying Holocaust-era German “bonds”. A little decency!” This bold parallel is drawn by Bill BrowderCEO of investment fund Hermitage Capital Management and longtime critic of Vladimir Putin.
In early March, this American businessman was concerned about the greed of certain speculators who would see an opportunity to do business in the East, especially in the Moscow invasion war in Ukraine.
Russian Tank Columns Won’t Stop Speculators
And a month later, the first numbers circulating prove that he is right. “Trading volumes of Russian and Ukrainian corporate debt rose from less than $100 million before Feb. 24 to between $300 million and $500 million in early March. And since then, the number of transactions has largely remained above $100 million,” said Alexandre Baradez, financial analyst at IG France, contacted by France 24. “There have never been so many transactions on Russian securities since March 2020”, adds Bloomberg†
In other words, there are those who are desperately looking for Russian or Ukrainian assets that they had in their portfolio. No wonder: “The big institutional funds and banks do not want to end up with shares of companies from a country that has been hit by unprecedented sanctions. It is very bad for the reputation and the clients of these funds often do not want to be associated with wars,” explains Alexandre Baradez out.
But what’s even more surprising is that on the other side there are people who buy. The columns of Russian tanks advancing towards Kiev, the intensive bombing of Ukrainian cities did not stop specialists in speculation such as the Aurelius, Silver Point or GoldenTree funds from seizing the opportunity, tells the Financial Times on March 24† “These are funds that generally specialize in the purchase and resale of sovereign debt of countries in financial difficulty and have estimated that there is money to be made in Russia and Ukraine,” said Alexandre Baradez. He estimates that there should be no more than a few dozen hedge funds that currently dare to trade in Russia.
Their calculation is simple: institutional investors who held Russian or Ukrainian debt will try to get rid of their assets… at any cost. “Prices have fallen by 75% to 80% on certain assets,” said the IG France analyst. These speculators told themselves that it is not a few bombs or sanctions that “will make certain Russian banks, which are among the largest in the world, or Russian oil and gas giants worth only a few hundred million dollars, while these groups were tens of billions dollars,” Bloomberg reported on March 30.
Yandex, Gazprom, Lukoil or even Russian Railways are popular
These hedge funds have rushed into the assets of Russian internet giant Yandex, ubiquitous Gazprom, main Russian oil producer Lukoil, steel specialist Novolipetsk Steel or railway company Russian Railways, Bloomberg said.
These traders have even managed to buy Russian sovereign debt, which is no small feat, Bloomberg found. “Due to international sanctions, Russia is not authorized to raise money by issuing government bonds and this debt cannot be exchanged in the financial markets,” recalled Alexandre Baradez. Therefore, to obtain it, it is necessary to restore the title from hand to hand, explains the New York Post†
Transactions almost under the coat that can yield a lot, the American newspaper underlines. “A Russian bond maturing in September recently traded at 48 cents, meaning that if Moscow can repay at that point the original value at which the ‘bond’ was issued, these creditors could make a profit of more than 100%” , underlines the New York Post.
But it’s not just Russian debt that interests speculators. They are also looking for something from Ukraine. Several investors have acquired Ukrainian sovereign debt after the war started and “plan to buy more,” notes the Financial Times. Again, the chaos and destruction wrought by the war scares most investors off, but “with stocks plummeting 80%, some say there’s no way a country so massively supported by the West can fail.” can remain, which means that these assets will eventually regain in value,” explains Alexandre Baradez, the financial analyst. “The only scenario where I see this sovereign debt lose all its value is if Russia completely occupies Ukraine for a long time ,” one of these speculators told the Financial Times.
Extremely risky bets
Most of these speculators prefer to stay out of the media spotlight. “They’re there to make money, not to make noise,” summarizes Alexandre Baradez. But some are more vocal than others. This is the case of David Amaryan, an Armenian investor and director of the investment fund Balchug Capital, who explained in detail to the Wall Street Journal on April 3. why he started buying Russian assets “the day Vladimir Putin declared war on Ukraine”.
David Amaryan has spent millions of dollars buying shares in Rosneft, Lukoil, Gazprom and even Sberbank. His reason? “I called my clients to ask if they had a problem with me investing their money in Russian companies, they told me to do my job and bring them money,” he sums up.
Today, more than 50% of the funds he manages are invested in Russian securities. He knows that these crises can pay off, he had already walked the same path in 2014 after the annexation of Crimea, notes the Wall Street Journal. “The bad phases always come to an end,” he assures. According to him, it would be enough to put blinders on his morals and be patient.
“These are extremely risky bets,” Alexandre Baradez, for his part, wants to believe. Admittedly, speculators do what they do in any crisis and buy when no one else wants to. But making money from the deadly fighting in Ukraine is arguably more dangerous than speculating about, say, the 2008 financial crisis or Argentina’s bankruptcy in 2001.
International sanctions can still be extended. The discovery of the mass grave at Boutcha made Europe increasingly consider an embargo on Russian coal, gas or oil. Assumptions that speculators betting on Gazprom, Lukoil or Rosneft didn’t think possible.
Firebird Management, a hedge fund specializing in Russia, is going against the grain of some of its peers and currently plans to sell some of its Russian assets, the Financial Times reports. This fund had gained a lot after the annexation of Crimea, but also lost a lot in 1998, after the bankruptcy of Russia. And he knows that although all things come to an end, sometimes they can end in a knockout