Wednesday, March 5, 2014

The Russian Hedge Fund Manager

The Russian Hedge Fund Manager

I’ve begun wondering why Russian President Vladimir V. Putin doesn’t manage a hedge fund.  The financial markets tumble and then rebound based on his every move.  Why isn’t he taking advantage of the opportunity? Since the British are reluctant to impose economic sanctions on the Russian financiers and oligarchs residing in London, Mr. Putin could safely set up his firm there.  It would be a lot easier having professionals market the fund out of London than setting them up in Sevastopol, Crimea.  Moreover, ex-Goldman Sachs traders and Harvard MBAs seem to like Mayfair.  He’s going to need a proper façade, and London is best spot.
Risk Manager (2002)
The investors’ money would, of course, be housed in offshore accounts to keep local tax authorities from hauling away any of the profits.  Before the financial crisis in Cyprus, Mr. Putin would have set up the fund structure on the Mediterranean island.  Russians loved to do their banking there before they lost most of their money.  Today, he’d probably select a different jurisdiction in order to protect his management fee and carried interest for the time when the Russian people finally grow weary of his rule.

If Stephen A. Cohen could charge something like a 3% management fee and 30% carry, Mr. Putin would get an even bigger premium because his ability to manipulate markets exceeds even the most sophisticated insider-trading scheme.  As you’ll see, Mr. Putin wouldn’t even have to reveal his involvement.  All he’d need is a compelling six-month track record and story in order to lure wealthy investors and institutions into his fund.

Here’s how it might have worked.  Last summer, President Putin would have gently asked his oligarch friends to donate a bit of money to incubate the fund and set up the appropriate offices in London. In September as President Obama threatened to intervene in Syria, Mr. Putin would have had his newly hired traders short equity futures.  Ka-ching.  Just before Mr. Obama gave the order to launch cruise missiles and fighters, Mr. Putin would have ordered the traders to cover the short and go long futures.  As soon as he got off the phone with his traders, he’d have called his foreign minister, Sergey Lavrov, and told him to offer the United States the opportunity to negotiate for the removal of Syrian chemical weapons (he might have owed President Assad a few points of the carry).  The markets recovered. Ka-ching, the fund made big money.

Earlier this week, he’d have put the short position on again and then ordered Field General Staff of the Armed Forces Valery V.Gerasimovto to roll Russian tanks to within 20 meters of the Ukrainian border.  Lo and behold, financial markets imploded, his short position would be have been golden.  Ka-ching, another successful trade.  At the end of the day before retiring to his dacha, he’d have ordered the traders to take off the short position and reinstitute the long position.  During the night, Mr. Putin would then order General Gerasimovto to back up the tanks to 40 meters from the boarder.  Ka-ching, stocks were up about 2% yesterday.

With just these two trades, no down months, and six months of investment history, Mr. Putin would have more than enough to market the Global Macro Fund of Stocks and Bonds (FSB).  If the average Wall Street guru only needs a six-month record to lure capital, President Putin’s impeccable track record should be more than sufficient.   I’m sure the MBAs and ex-traders in London could put together a Power Point that would look like a sophisticated investment strategy rather than an exercise in Realpolitik.  In no time at all, FSB would have sophisticated western investors clamoring for a sure thing, and Mr. Putin would really have control over all of us.

By the way, supplying natural gas to Western Europe offers the President a big opportunity to launch an energy fund any time he tires of playing with his tanks.

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