It was a real shock to hear that Bill Browder, CEO of Hermitage Capital, had been blocked from entering Russia. He manages the biggest portfolio fund in Russia, a four-billion-dollar gorilla that makes other Russia funds look like hamsters.

And he’s also one of the most vocal supporters of Putin in the international community. Every year, he’s practically the only representative of ‘Russia Inc.’ at Davos, holding his traditional breakfast seminar on why the foreign press have got it wrong and Russia is actually a safer, more civilized place under Putin. For the government to refuse him entry makes it look like, well, like the foreign press was right after all.

I’ve got a lot of respect for Bill Browder. It is in part thanks to him that I’m here in Moscow. The first story I ever wrote on Russia, as a novice financial reporter in London in 2001, was after I was contacted by Bill, who emailed me a power-point presentation, then phoned me up and talked me through it as, page-by-page, it exposed the heinous crimes of the Gazprom management.

I’d never seen anything like it. Before, I’d been writing about German regional bond issues or the wonders of e-finance, and here was what appeared to be the biggest theft in the history of capitalism. The Gazprom management had just taken the multi-billion-dollar export arm of the company, and sold it to their children for a fraction of the price. It was mind-boggling. It was fascinating. From that moment on, Russia always seemed a far more exciting subject to write about than any other area of business, and that was what drew me to live here in 2004.

That was to be the first of many, many power-point presentations from Bill. I’ve seen Hermitage presentations on Sberbank, TNK-BP, Surgutneftegaz, Ukraine, and of course the traditional annual Gazprom report where Vadim Kleiner, Browder’s head of research, burrows through the dirty laundry of Gazprom, then miraculously fails to get elected to its board of directors. Ah, Vadim has failed to get elected to Gazprom. It must be June.

After a while, to be honest, you get the sense you’re being used. And of course you are – the media is a crucial part of Hermitage’s strategy. Right from the first battles of the late 1990s, Browder’s technique was to buy minority stakes in companies where the share price was very low, then kick up a big fuss in the international media about how badly the company treats minority shareholders, until the company relents, and the share price rises.

One of the first times he did it was against Sidanco, then owned by Vladimir Potanin. Sidanco issued a convertible bond, via Boris Jordan’s Renaissance Capital, which massively diluted minority shareholders’ stakes. Browder took the battle to the pages of the Financial Times, the Wall Street Journal, anywhere he could. The power-point is mightier than the sword. Jordan rang him up, Browder claims, and said ‘You’re not playing by the rules’. Well, the rules were changing. Eventually Browder won, Sidanco cancelled the bond issue, and the stock price rose.

So the press have always been a key part in Browder’s strategy, and in fact, the dirt that he and Vadim unearth is always so compelling, that journalists are usually happy to write about it. In fact, their research usually puts our research to shame, considering all they usually do to get it is buy a boot-legged tax disk from Garbushka.

And I would wager that Bill also likes the publicity personally. If you go into his office in Moscow, the two things that strike you are, firstly, the incredibly glamorous receptionist, and secondly, the fact the walls are covered with articles about Bill, photos of Bill, caricatures of Bill, Davos young leader plaques for Bill. It reminds one of colonel Kurtz in Apocalypse Now: “He’s disappeared in the jungle…and apparently the natives worship him there as…some kind of…God.”

Another key part of Browder’s strategy has been the assumption that the government is on the side of minority investors, and genuinely wants to improve the business climate in Russia. One foreign banker told me, before this visa hoo-ha kicked off, that Hermitage only really started making a lot of noise about corporate governance after the Putin government had stood by UFG in its titanic battle with the Rem Vyakhirev management of Gazprom in 2000. The source at UFG said, some months before this present visa situation occurred: “When we were getting killed by the Gazprom management, where the hell were Hermitage? They assumed we’d lose, so they simply disappeared into the background. It was only when it was clear that Putin was on our side that Hermitage started making a lot of noise and fighting the good fight for corporate governance.”

Whoever first started the corporate governance crusade, it has been a very profitable one, for all concerned. Fund managers get huge returns – Hermitage itself is reported to have made $800 million in profits last year. And majority shareholders get much bigger fortunes, thanks to rising share capitalizations. That includes the government, the majority shareholder in Gazprom, Sberbank and other state targets of Browder’s venom.

Still, some managers who played by the old 1990s rules no doubt did not forget or forgive the noisy American (or Englishman, or whatever his nationality is) and his cruel exposes.

The first I heard of this visa situation was last weekend, when a friend told me Browder has been deported. My first thought was “man, he’s a spy!” That’s sort of the knee-jerk reaction in Moscow these days. I mean, why else would someone be deported? If he’d done something criminal, surely he’d just be charged. And after all, wasn’t Bill’s grandfather, and his great-aunt both spies. Yes…but that was in 1940s America, and they were spies for the KGB.

Then I heard he hadn’t been deported, just not let back in. There is, in fact, some precedent for controversial foreign businessmen not being let back in to Russia. It happened to Boris Jordan, Browder’s old nemesis. It happened to Elizabeth Hebert, manager of Pallada Asset Management. It happened to some BP executives. Some, like Jordan, managed to fix the situation. Others, like Hebert, didn’t, and that was basically the end of her Russia career.

Sources close to Hermitage say if Browder’s not let back in, he will simply set up an office in London, like other Russia fund managers such as Prosperity Asset Management. We live in a globalized era, after all, he doesn’t actually need to set foot in Russia.

But Prosperity does not generally undertake the same high-profile and controversial corporate governance campaigns as those upon which Hermitage has built its success. The allure of Browder’s fund depends to an extent on the market perception that the government at the highest levels is on his side, and is surreptitiously supporting his attack on inefficient state managers, as it surreptitiously supported UFG’s original crusade against Vyakhirev. That marketing strategy clearly won’t work if Browder is seen to be at odds with the government, if he is not even let into the country in which he claims to believe.

The ruling assumption, at this stage, is that the top level of the government does support what he and other foreign investors have done in Russia over the last few years, and that it does support state companies cleaning up their acts. Browder’s visa problems, this argument goes, simply haven’t yet reached the top levels, i.e. Putin, despite the intervention of the UK foreign minister, the fearsome Jack Straw.  James Fenkner, head of Red Star Asset Management, says: “This looks very petty to me. I don’t think this was government policy, I think this was someone settling scores.”

Still, it will be damaging for the general investment climate if the biggest portfolio manager in Russia is not allowed into the country. It will send a stronger message than any of Browder’s ‘Russia is great’ power-point presentations. Browder may have helped himself over the last 14 years, but he has also helped other investors – Fenkner says “his work has made for the market we can all enjoy”– and it has helped the government too. And it’s certainly helped the media. He’s a good example of the old liberal theory of self-interest creating public goods.

But more than that, personally speaking, he’s one of Moscow’s colourful characters, one of the people who make working here amusing and not dull. We must print the placards and parade in-front of the Duma – BRING BACK BILL!

Julian Evans, a British freelance journalist based in Moscow.

March 22, 2006