Several hedge funds have been very active since the start of the Russian invasion of Ukraine. The amount of trading in Russian or Ukrainian assets has increased two or three times compared to before the war, according to data for March published in several media outlets last week.
“I get a lot of calls from my old hedge fund acquaintances asking me if they should buy Russian assets that have been devalued [because of the war]. I tell them it would be like buying German ‘bonds’ at the time of the Holocaust. Have some decency!” This daring parallel is signed by Bill Browder, CEO of the investment fund Hermitage Capital Management and long-time critic of Vladimir Putin.
This American businessman was worried at the beginning of March about the greed of certain speculators who would see the war of invasion led by Moscow in Ukraine as an opportunity to do business in the East.
Russian tank columns do not stop speculators
And a month later, the first figures that are circulating prove him right. “Trading volumes in the debt of Russian and Ukrainian companies have risen from less than $100 million before 24 February to between $300 million and $500 million in early March. And since then, the amount of transactions has remained well above $100 million,” noted Alexandre Baradez, a financial analyst at IG France, contacted by France 24. “There has never been so much trading in Russian stocks since March 2020,” Bloomberg added.
In other words, there are those desperate to get rid of the Russian or Ukrainian assets they had in their portfolio. No wonder: “Large institutional funds and banks have no desire to be stuck with shares of companies in a country hit by unprecedented sanctions. It’s very bad for their reputation, and the clients of these funds often want to avoid being associated with wars,” explains Alexandre Baradez.
But what is more surprising is that, on the other side, there are those who buy. The columns of Russian tanks advancing on Kiev and the intensive bombing of Ukrainian cities did not prevent speculation specialists such as the Aurelius, Silver Point and GoldenTree funds from jumping on the opportunity, the Financial Times reported on 24 March. “These are funds that generally specialise in buying and selling the sovereign debt of countries in financial difficulty and which felt that there was money to be made in Russia and Ukraine,” says Alexandre Baradez. He estimates that there must be no more than a few dozen hedge funds that currently dare to make their market in Russia.
Their calculation is simple: institutional investors who held Russian or Ukrainian debt will try to get rid of their assets… at any price. “Prices have fallen by 75% to 80% on some assets,” says the IG France analyst. These speculators have told themselves that it is not a few bombs or sanctions that “will make some of the world’s largest Russian banks or Russian oil and gas giants worth only a few hundred million dollars, whereas before the war, these groups were worth tens of billions of dollars,” detailed the American business channel Bloomberg on 30 March.
Yandex, Gazprom, Lukoil and Russian Railways are popular
These hedge funds have rushed to buy the assets of the Russian Internet giant Yandex, the ubiquitous Gazprom, the main Russian oil producer Lukoil, the steel specialist Novolipetsk Steel and the Russian railways operator Russian Railways, Bloomberg said.
These traders have even managed to buy Russian sovereign debt, which is no mean feat, Bloomberg found. “Because of international sanctions, Russia is not allowed to raise money by issuing treasury bills and this debt cannot be traded on the financial markets,” says Alexandre Baradez. In order to obtain it, you have to hand it over to each other, explains the New York Post.
Almost under-the-table transactions that can pay off big, the US newspaper points out. “A Russian bond maturing in September was recently trading at 48 cents, which means that if Moscow can repay by then the original value at which the ‘bond’ was issued, these creditors could make a profit of more than 100%,” the New York Post points out.
But it’s not just Russian debt that interests speculators. They are also on the lookout for anything from Ukraine. Several investors bought Ukrainian sovereign debt after the war began and “plan to buy more,” notes the Financial Times. Again, the chaos and destruction wrought by the war has scared off most investors, but “with securities falling in value by 80%, some are saying there is no way a country backed so heavily by the West could default, which means these assets will eventually regain value,” says financial analyst Alexandre Baradez. “The only scenario in which I see this sovereign debt losing 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 are there to make money, not to make noise,” says 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 at length to the Wall Street Journal on 3 April 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 Sberbank. His justification? “I phoned my clients to ask them if they had a problem with me investing their money in Russian companies, and they told me to do my job and make money for them,” he says.
Today, more than 50% of the funds he manages are invested in Russian stocks. He knows that these crises can pay off big time, he had already followed the same path in 2014 after the annexation of Crimea, notes the Wall Street Journal. “Bad phases always have an end,” he assures. According to him, all you have to do is put blinders on your morals and be patient.
“These are extremely risky bets,” says Alexandre Baradez. Of course, speculators do what they do in every crisis and buy when no one else will. But making money on the back of the deadly fighting in Ukraine is perhaps more dangerous than trying to speculate on the financial crisis of 2008 or the bankruptcy of Argentina in 2001, for example.
International sanctions can still be extended. The discovery of the mass grave in Butcha has led Europe to increasingly consider an embargo on Russian coal, gas or oil. Speculators who bet on Gazprom, Lukoil or Rosneft did not think this possible.
Firebird Management, a hedge fund specialising in Russia, is going against the grain of some of its peers and is currently looking to sell some of its Russian assets, says the Financial Times. The fund made a lot of money after the annexation of Crimea, but it also lost a lot in 1998 after Russia went bankrupt. And it knows that while all things have an end, sometimes they can end in a knockout.
