There is money - no need for intelligence

Alexander Prishchepov, a specialist in the installation of plastic windows, came to Moscow from Obninsk in 2005 and got a job as a courier at the investment company Troika Dialog. Two years later, Prishchepov took a course in playing on the stock exchange worth approximately 1,500 rubles and got a job as a fund manager at Maxwell Capital Investment Company. There, the new specialist was immediately entrusted with three mutual funds, into which trusting investors contributed 500 million rubles. Over the course of a year, Prishchepov lost 320 million rubles.

The irresponsibility and lack of professionalism of Russian traders, coupled with the golden rule of “profits for yourself, losses for the client,” were invisible for a long time. All was masked by the growth of the stock market - for the last few years it has risen by 50-80% per year. You don’t need a great mind to make money in an ever-growing market. Almost everyone succeeded in this - investments in securities brought much more than bank deposits did. The investors were happy, they didn’t count their money, they didn’t think about the risks. And then everything collapsed.

The crisis has shown what many securities market professionals are really worth. Either by mistake or by malicious intent, most of them turned their clients' capital into dust. Of course, the market decline also played a role - the value of almost all securities fell. Investors, of course, lost on this. But in many cases the losses could have been avoided. “In May 2006, analyzing the market situation, we realized that it was unnatural and would not last long. We didn’t know exactly when the crisis would begin, but we were sure that before 2009,” Ruben Vardanyan, owner of Troika Dialog, told Vedomosti in October.

But this knowledge did not help Troika’s clients. Last spring, Troika invested funds from its clients’ pension accounts in shares of Russian companies. Such an aggressive strategy is usually based on the belief that the market will continue to grow. And the market collapsed - in full accordance with the Troika’s forecast. Her clients' pension savings were down nearly 45%, the worst performance in the market.

How did this happen, Newsweek asked Troika. “The share of shares in the portfolio in accordance with the investment declaration has always been quite high, and this is what led to a significant change in the estimated value of the portfolio,” answered Anna Vedernikova, director of government relations at Troika Dialog. In other words, clients were warned in advance that they would invest in shares.

The same thing - almost word for word - is said at the Agana management company. She also lost almost 45% in one of her pension portfolios. Now Agana is urging future retirees not to lose heart and even promising profits - in a maximum of 10 years. You could have lost less by selling the shares when they first started to decline in price. “The fall in the stock market was so rapid and deep that we considered it inappropriate to sell shares and record losses in such a sharply declining market,” Roman Sokolov, general director of Trinfico Management Company, tells Newsweek. He means that it is more efficient to already reach the bottom and wait for growth.

Trinfico lost more than 44% in one of its portfolios during the nine months of 2008 and, together with Troika and Agana, heads the list of the worst managers of pension assets.

Investment companies always have a choice: take risks with other people's money or play it safe. Many money managers - both in the world and in Russia - have chosen the first option. Now economists and politicians say that this collective irresponsibility has become one of the main causes of the crisis.

There is an old joke about the consequences of managerial overconfidence: “There are many graves in the cemetery of brokers whose last words were “I’ve never seen anything like this before.” In the sense that they did not expect that they were involved in a risky game. The joke is no longer relevant. Many managers foresaw the current crisis, but did nothing to prevent the ruin of their clients.

BANKING ZERO FUNDS

Minus 45% per annum is still a decent result. The absolute leader in losses in 2008 was the general funds of bank management (FBU) of Uniastrum Bank. In the fund he managed, “Premier Fund of Russian Shares “Doubled”,” 98% of investors’ money was dissolved. Zenit Bank is slightly behind - clients of its funds Profitable II and Perspective lost 95% of their funds. OFBU is a banking product built on the model of mutual investment funds, only with greater freedom of action: investors’ money goes into circulation on the market. Bank deposits did not even save against inflation, and on OFBU people earned 50% per annum or more.

Against the background of Uniastrum and Zenit, the Aurora fund of Transcreditbank (TCB) looks like a winner: 78.9% loss. Now they are all trying to explain: the investors knew what they were getting into. “The Aurora Fund is positioned as a portfolio with an aggressive trading strategy. But profitability, several times higher than the general market one, is not free,” says Dmitry Gorsky from TKB. Zenit also says that clients suffered losses due to objective reasons. “[The reason was] a sharp deterioration in the market situation and the depreciation of all securities without exception,” explains Sergei Matyushin, deputy head of the bank’s investment department.

But former Uniastrum investors disagree. In the fall they wrote a complaint to the Prosecutor General's Office. In their opinion, it was all about the so-called “leverage game”: fund managers pledged shares, then took out a loan against these shares, bought new shares and pledged them again. This pyramid brought in super profits while the market was rising. But when the shares fell in price, Uniastrum and others like it urgently needed to raise money to secure the collateral. To get money, banks began to dump already rapidly falling shares, and the value of many OFBUs fell sharply. On September 29, some funds of the same Uniastrum fell in price by 90% or more. Their investors claim that they lost about 1 billion rubles.

They suspect that the Uniastrum funds had one more feature: almost 50% of the funds of some OFBUs went to the purchase of bills of the Utrade company. One of the leaders of Utrade, the victims say, was the deputy chairman of Uniastrum, Denis Eganov. And in the fall, Utrade ran out of money, and the price of bills dropped to zero. At the end of the year, Eganov resigned from the bank, and Uniastrum does not say where he is now. But the bank still employs OFBU manager Mikhail Korolyuk, a military medic from St. Petersburg. He did not want to talk to Newsweek, but anyone can get his valuable advice on the website www.moysha.ru , which Korolyuk continues to maintain no matter what.

WHO TAKES NO RISK

There is no state control over OFBUs: managers can invest money however and wherever they want, even in JSC MMM. And for mutual investment funds (UIFs), there are strict rules for the placement of shareholders’ funds, there are reporting requirements, and all this is monitored by the Federal Service for Financial Markets (FSFM). Despite this, mutual fund investors lost slightly less than those who invested in OFBU. For example, the Ostankino - Russian Communications fund of the Bank of Moscow showed losses of 83%.

Economist Vladimir Mau argues: the crisis showed that the state failed to regulate financial markets. Back in 2007, experts discussed the issue of limiting investor access to industry funds. Industry mutual funds invest in specific industries. This is very risky: it is dangerous to put all your eggs in one basket. If something were to happen to this industry, as happened to communications, the investor would lose almost everything. Banks did not particularly bother explaining that the higher the risk, the higher the income, and vice versa.

In total, almost two dozen industry funds were created in different industries. The logic was that mutual fund managers registered several such funds at once and invested a small amount in each, buying profitable but potentially dangerous assets. Some fund brought fantastic interest per annum. It was advertised everywhere. But investors didn’t think that an extremely high interest rate is a sign of risk, and plus 60% today can easily turn into minus 80% tomorrow.

The Bank of Moscow had one of the widest ranges of industry funds on the market. The bank refused to talk to Newsweek about this topic. The Maxwell Capital company also preferred to remain silent - their fund of the same name became the leader in losses among mutual funds. He lost almost 84% of his weight. After this, the company’s press service was disbanded, and CEO Peter Lanin did not answer questions. Company employees say that he has recently refused to communicate with the press.

Until recently, Maxwell’s managers did not even think about hiding. Mutual fund manager Alexander Prishchepov became famous in the market last year for his powerful career rise - from couriers to fund managers. And his boss, Sergei Usichenko, became famous in January: live on RBC-TV, he drank vodka for the death of the stock market with the words “about a dead person - either good or nothing.”

ATYPICAL FEVER

“As a rule, money was managed by people with good training - those with an MBA degree from a Western university,” former Deutsche Bank manager Vladimir Pakhomov justifies his colleagues. “The Maxwell case is atypical for our market,” he says. Maxwell's managers also distinguished themselves in the bond market. Debt securities provide less income than stocks, but they are more predictable - a tool for those who do not want to take risks and are ready to earn less. Bond mutual funds were created for such investors. Maxwell also created its own mutual fund and filled its portfolio with securities of companies that ultimately were unable to pay off their debts. Investors lost almost 75% of their invested funds.

Other managers showed results even worse than the “atypical for the market” Maxwell. In the Universal bond fund of the management company Capital Asset Management, 78% of clients’ money disappeared. The company could not be reached by telephone, and an email sent to CEO Edward Zhuk remained unanswered. Why the fund lost almost 80% is known: with investors’ money, managers bought securities that later defaulted. These are, for example, bonds of the companies APK Arkada, Inkom-Lada, and Marta.

“A lot of transactions with pre-default bonds took place in pension and mutual funds, which - often retroactively - were transferred from the balance sheet of the management company to the pension fund. Why is clear: in order to shift most of the losses from the company to its clients,” one of the major Moscow financiers is convinced. He says that the Federal Financial Markets Service poorly protects the rights of investors. “This is how it works: client capital managers are not separated from operations with own capital,” he explains. This means that the manager can sit on two chairs at the same time: trying to make money for himself or for the company and providing brokerage services to the client. Then there is a great temptation to shift your problems onto your clients. “It is impossible to prove this. To catch them by the hand, you need to place cameras everywhere and record everything,” says Newsweek’s source.

Experts now call it the careless players who issued bonds, thus borrowing on the debt market. They issued bonds without having anything behind them, but this used to be considered normal. There were practically no defaults, and everyone got used to believing that any company would repay the debt. And they provided management reporting, drawn almost on their knees. The auditors turned a blind eye to this, and investors kept buying and buying these bonds.

The worse the bonds are secured, the higher the interest that the company that issued them pays on them: otherwise they will not be bought. “Bonds of normal companies with good reporting brought 7–8% per annum, but investors wanted more, for example, 15%,” says Pavel Sokolov, managing director of Troika Dialog. “And 15% is Banana Mama, a start-up, a company without a business.”

There have been 56 bond defaults since September. “In previous years, companies actively took on debt and were unable to stop quickly: in order to pay off old debts, they had to get into new ones,” explains Boris Ginzburg, head of the debt department at Uralsib Capital. Uralsib sold bonds of six companies, and all of them then declared default. “Blaming us is like complaining about high cholesterol while eating at McDonald's. You know what you’re getting into,” says Ginsburg. However, in the USA, clients have more than once managed to sue McDonald's for money.