Several hedge funds have been very active since the beginning of the Russian invasion of Ukraine. The amount of transactions in Russian or Ukrainian assets has increased two or three times compared to before the war, according to data for the month of March published in various media last week.
“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 German ‘bonds’ from the time of the Holocaust. A little decency!” This bold parallel is signed by Bill BrowderCEO of the investment fund Hermitage Capital Management and a longtime critic of Vladimir Putin.
This American businessman expressed concern, at the beginning of March, about the greed of certain speculators who would see, above all, in the war of invasion carried out in Ukraine by Moscow an opportunity to do business in the East.
Russian tank columns do not stop speculators.
And a month later, the first figures that circulate prove him right. “Russian and Ukrainian corporate debt trading volumes increased from less than $100 million before February 24 to between $300 million and $500 million in early March. And since then, the amount of transactions has remained very above 100 million dollars,” said Alexandre Baradez, a financial analyst at IG France, contacted by France 24. “There have never been so many transactions with Russian securities since March 2020,” adds Bloomberg.
In other words, there are those who are desperate to get rid of the Russian or Ukrainian assets they held. No wonder: “Large institutional funds and banks have no desire to wipe out shares of companies in a country hit by unprecedented sanctions. It’s very bad for reputation, and clients of these funds often seek not to be associated with wars.” “, explains Alexandre Baradez.
But what is most surprising is that, on the other side, there are those who buy. The columns of Russian tanks advancing on kyiv, the intense bombing of Ukrainian cities did not prevent specialists in speculation such as the Aurelius, Silver Point or GoldenTree funds from taking advantage of the opportunity, tells the Financial Times on March 24. “These are funds generally specialized in the purchase and resale of sovereign debt of countries in financial difficulties and that have estimated that there was money to be made in Russia and Ukraine,” specifies Alexandre Baradez. He estimates that there may be no more than a few dozen hedge funds currently daring to trade in Russia.
His calculation is simple: Institutional investors who held Russian or Ukrainian debt will seek to shed their assets… at any price. “Prices have fallen between 75% and 80% in certain assets,” specifies the IG France analyst. These speculators told themselves that it is not some bombshell or sanctions that “are going to make certain Russian banks that are among the largest in the world or Russian oil and gas giants worth only a few hundred million dollars.” when before the war, these groups were worth tens of billions of dollars”, detailed the American economic channel Bloomberg on March 30.
Yandex, Gazprom, Lukoil or even Russian Railways are popular
These hedge funds have swooped on the assets of Russian internet giant Yandex, the ubiquitous Gazprom, major Russian oil producer Lukoil, steel specialist Novolipetsk Steel or rail operator Russian Railways, says Bloomberg.
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 Treasury bonds and this debt cannot be exchanged in the financial markets”, recalls Alexandre Baradez. To obtain it, therefore, it is necessary to retrieve the title from hand to hand, explains the New York Post.
Almost hidden transactions that can bear great fruit, underlines the American newspaper. “A Russian bond due in September was recently priced at 48 cents, which means that if Moscow can repay the original value at which the ‘bond’ was issued at that time, these creditors could make a profit of more than 100%” , underlines. the New York Post.
But it is not just Russian debt that speculators are interested in. They are also attentive to anything from the Ukraine. Several investors bought Ukraine’s sovereign debt after the start of the war and “intend to continue buying more”, notes the Financial Times. Once again, the chaos and destruction wrought by the war spooked most investors, but “with stocks down 80%, some say there is no way a country backed so massively by the West can default, which means these assets will eventually recover their value. ”, explains Alexandre Baradez, the financial analyst. “The only scenario where I see this sovereign debt becoming worthless is if Russia completely occupies Ukraine for a long time,” one such speculator 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”, sums up Alexandre Baradez. But some are more vocal than others. This is the case of David Amaryan, an Armenian investor and director of the Balchug Capital investment fund, who explained at length to the Wall Street Journal on April 3 why he started buying Russian assets “the day Vladimir Putin declared war on Ukraine.”
David Amayan has spent millions of dollars buying shares of Rosneft, Lukoil, Gazprom and even Sberbank. His raison d’être of him? “J’ai téléphone à mes clients pour leur demander si ça leur posait a problem que j’investisse leur argent dans des entreprises russes, ils m’ont dit de faire mon travail et de leur rapporter de l’argent”, résume-t -He.
Today, more than 50% of the funds it manages are invested in Russian securities. He knows that these crises can bear great fruit, he had already followed the same path in 2014 after the annexation of Crimea, says the Wall Street Journal. “Bad times always have an end,” she says. 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. It is true that speculators do what they do in every crisis and buy when no one else wants. But making money off the deadly fighting in Ukraine is perhaps more dangerous than pretending to speculate on the 2008 financial crisis or Argentina’s 2001 bankruptcy, for example.
International sanctions can still be extended. The discovery of the mass grave at Boutcha made Europe increasingly seriously consider an embargo on Russian coal, gas or oil. Assumptions that the speculators who bet on Gazprom, Lukoil or Rosneft did not believe possible.
Firebird Management, a hedge fund specializing in Russia, is going against the grain of some of its peers and is currently looking to sell some of its Russian assets, the Financial Times reports. This fund had gained a lot after the annexation of Crimea, but it had also lost a lot in 1998, after the bankruptcy of Russia. And he knows that while all things come to an end, sometimes they can end in a knockout.