The investor who stays loyal to Russia

Investors were getting rid of anything Russian, and the hedge fund manager was happy to take the other side of the deal. He bought shares in energy giants Rosneft, Lukoil and Gazprom. He bought banks – including Russia’s biggest lender, Sberbank – and some local retailers and mining companies.

When Mr. Amaryan’s buying spree ended, about 55% of his investment firm’s $250 million was in Russian stocks, up from 30% to 35% before the invasion.

Investors looking for bargains love to buy when everyone else is selling. That momentum has been consistently rewarded in the U.S. stock market, where Dow industrials have soared to a record 291 closes since 2008.

Russia is a completely different case. Its leader is waging a brutal war against Ukraine that has claimed the lives of more than 1,000 civilians. Its financial infrastructure has been separated from the West. Its stock market is a stock exchange in name only, with foreign investors barred from selling stocks that have lost much of their value.

Big investors like Vanguard Group and Fidelity International are waiting at the exit, hoping to get out without losing everything. But Mr. Amaryan has no intention of selling. He is convinced that Russian stocks are still investable, despite their heavy losses.

The dynamics offer a glimpse of a remade Russian market, isolated from global currency centers and dominated by fortune hunters like Mr. Amaryan who decided the financial and political risks were worth the potential gains.

“We definitely don’t have rose-tinted glasses. Everything is difficult,” Mr. Amaryan said. “But we are, compared to others, at the level where we feel ready to intervene.”

Mr. Amaryan, 41, straddles two worlds. His company, Balchug Capital, is registered in Armenia, where he was born, but he lives and works in Moscow. Russian stocks accounted for up to 70% of Balchug’s returns last year on average, a person familiar with the matter said. The company has 11 employees in Moscow and five in Yerevan, Armenia, where Mr. Amaryan lived until he was 14 years old.

Mr. Amaryan began his career in finance on Wall Street. He left New York for Moscow in 2003 to join Citigroup Inc., where he advised very wealthy clients. A stint followed at a prestigious Russian investment bank which was later swallowed up by Sberbank.

He takes root in Moscow, performs as a DJ in local clubs and founds a martial arts studio where he practices Brazilian jujitsu.

Mr. Amaryan started his own company, Copperstone Capital, in 2010. The company ran into trouble in 2015 when the Securities and Exchange Commission charged Copperstone and other investment companies over information gleaned from press releases. stolen and unpublished. He paid a $10 million settlement in 2016 but did not admit wrongdoing.

Mr. Amaryan, who maintained his innocence during the proceedings, changed the company’s name to Balchug after the settlement. It has never been forbidden to manage money.

The firm bet big on Russian stocks after investors shunned the country for its 2014 invasion of Crimea. In 2019, some 80% of Balchug was invested in Russia, through local Russian stocks and securities trading in New York and London. Mr. Amaryan stocked up on oil and steel companies. The business was up 46% that year, according to a person familiar with the matter.

Balchug cut some of those positions to lock in gains when the pandemic hit.

In 2021 he was ready to return to Russia. Commodity prices were high, and the company had done well with Russian metals and mining companies. Some were paying 15% dividends at the time, and the broader market was trading at a 30% to 35% discount to other emerging markets.

Expecting sanctions but not war, Mr Amaryan earlier this year reduced the debt he was using to buy shares, increased the company’s cash position to between 15% and 17% and reduced some holdings of Russian and Western companies. Balchug used futures contracts to hedge the ruble and bought shares in a company that operates high-quality coal mines that operate in Russia but sell coal to China for US dollars.

Mr Amaryan was “pretty confident” that Russia would not go to war with Ukraine, he told the Financial Times in early February. “If there were to be a war, people would act differently,” he said. “Everyone is pretty calm.”

A friend woke Mr Amaryan at 5 a.m. on February 24, telling him to check in on the news. Mr Putin said Russia was sending troops to Ukraine. “It was a shock,” he said. “I knew from that moment it was going to be a tough time.”

His initial thoughts turned to how to protect his business and customers – spread across Russia, the UK, the European Union and the United Arab Emirates – in the event that sanctions were imposed. He moved more of the company’s money to Western banks outside of Russia, where most of it now resides.

A day after the invasion, Mr. Amaryan started buying again.

He couldn’t believe that blue chip Russian companies would go bankrupt, despite their steep decline. He checked with customers to make sure they had no moral qualms about buying. They told him to do his job and make money, he said.

“The biggest oil companies and the biggest banks cannot be worth a few hundred million dollars,” Amaryan said, referring to the precipitous decline of Russian companies in foreign markets.

The war in Ukraine brings back memories of a childhood in Armenia marked by military skirmishes.

“When you run a hedge fund at the best of times you try not to let emotions get in the way and create bias,” he said. “It’s more difficult in times like this.”

But Mr. Amaryan said he was optimistic. “Even the worst things in the world have a beginning and an end,” he tells his customers and employees. He said he had not received any redemption requests.

While waiting for the market to recover, Mr. Amaryan looks at US and European technology companies and looks for bargains among Chinese stocks.

He expects conditions in Russia to be difficult for the next six to twelve months. Still, he is ready to add to his Russian holdings, at the right price.

When the market opened in late March, Mr. Amaryan held back. He said he was waiting for foreign investors to sell, which could provide a better entry point. Prices would need to drop at least 20% to 30% before he thinks to buy more, Mr Amaryan said, assuming the situation in Ukraine does not worsen.

In the longer term, he thinks Russia’s relationship with China will help ease the sting of Western sanctions. He ticks off oil, gas, wheat, grain, nickel, palladium and fertilizers as exports that bolster the country’s position as a vital trading partner.

“We’ve had many examples in our recent history where people thought it was the end of the world. It never does,” Mr. Amaryan said. “And if, God forbid, things get worse, none of us will care about the stock market anyway.”

This story was published from a news agency feed with no text edits

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