Spring Break
A Revolutionary at Heart:
Bill Browder, CEO of Hermitage Fund Speaks on Shareholder Activism in Russia
Alexander Lupachev (OE), Special Contributor
Issue date: 4/5/04 Section: News
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The talk was hosted by the Eastern European Association at Hawes 102, the exact venue of the now (in)famous Jim Rogers' debate. Aware of the historic setting, Bill Browder started off by saying he would try to do better than his predecessor. His odds were not bad: with more than a decade of investing experience in Russia, first as a banker at Salomon Brothers and then as head of the $1.4 billion Hermitage Fund, Mr. Browder has achieved significant recognition for his investment results and market insight.
As one of the leading portfolio investors in Russia, Browder expanded upon traditional passive investment strategies by pioneering shareholder activism as a key driver of his funds' performance. Referring to Professor Dyck's HBS case, Browder focused his presentation on the story of a dramatic shareholder fight for Gazprom, the largest producer of natural gas in the world. Despite its enormous reserves, by 2000 Gazprom traded at a 99% discount to its international peers, due to its poor transparency and corporate governance. Browder and his research team at Hermitage Fund saw the situation as a unique investment opportunity. Hermitage took a significant stake in Gazprom and launched a comprehensive campaign to improve its corporate governance.
Bill Browder's research provided major Western newspapers with numerous stories of asset stripping and insider dealing at Gazprom. While Gazprom's management largely ignored the critique, the Russian government did not. As the gas giant's largest shareholder, the government took stern action by reshuffling the Board of Directors, replacing the CEO and launching a detailed audit of the more controversial corporate transactions. The markets' enthusiasm about Browder's initiative rewarded Hermitage with an 88% return since the beginning of the campaign.
By building on such early success stories, Bill Browder and his team developed an impressive track record of shareholder activism with the largest Russian blue chip companies. His toolbox differentiated him from the rest: although Hermitage employed most of the classic activist strategies like shareholder meetings, lawsuits and appeals to the regulators, Browder placed a particular emphasis on PR campaigns in mass media.
