This article reviews the book Red Notice.
By: Bill Browder
While this book is more about corruption in the Russian business environment than it is about finding undervalued companies, it is nevertheless an interesting read for growth and value investors. Furthermore, the story Bill Browder tells in this book has great relevance to the current geopolitical tensions between the United States and Russia. In fact, the recent drama surrounding Donald Trump Jr. meeting with a Russian lawyer turned out to be about the Magnitsky Act.
Storyline of Red Notice
The beginning of this book offers autobiographical information of Mr. Browder which sets an important contextual setting for readers. After detailing several important life experiences, Browder delves into how he created a partnership with Edmond Safra to invest in Russia. Like many prominent investment partnerships, it evolved into an investment company. This investment company, called Hermitage Capital Management, was the largest foreign investor in Russia for many years.
During this time period, Russia was undergoing privatization of its businesses after the fall of the Soviet Union. The structure of privatization in Russia resulted in a small group of young men becoming billionaires, seemingly overnight, by arbitraging Russia's voucher-privatization program. Indeed, this group of young men are the powerful Russian oligarchs commonly referenced in geopolitical news articles.
Hermitage Capital Investment Strategy
Hermitage Capital Management's strategy was simple, albeit brilliant: invest in Russian companies corrupted by the oligarchs/government, and engage in public campaigns to curb the corruption. For a few years, this strategy worked well for Hermitage Capital, because Vladimir Putin was still working to gain power over the oligarchs. The public campaigns against corruption coincided with Putin's interest because the campaigns allowed the Russian government (and Putin) to intervene in the activity of the oligarchs. However, once Putin consolidated power over the oligarchs, Hermitage Capital's corruption campaigns were in opposition to Putin's interests.
Corruption in Russia & Sergei Magnitsky
It is at this point in the story that the true absurdity of the corruption in Russia manifests itself. Without ruining the book for potential readers, the Putin regime began an all-out assault on Hermitage Capital and Mr. Browder. One of the perilous situations Browder's team faced involved an unbelievable tax evasion charge. Browder & Co hired a prominent tax lawyer, Sergei Magnitsky, to defend them in the case. Despite his incredible bravery (which the reader will see throughout the book), Magnitsky was killed for his role in exposing the largest tax refund scam in history.
Thereafter, Browder began an epic campaign to seek justice for those involved in Magnitsky's death. His efforts paid off. The Magnitsky Act was passed in the US by Congress in 2012. The Magnitsky Act is the first of its kind: punish the corrupt Russian officials and oligarchs involved in Magnitsky's death. In response, the Kremlin passed legislation banning the adoption of Russian orphans by American families.
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About Bill Browder
The author of this incredibly interesting book, Bill Browder, popularized activist investing in companies operating in corrupt business environments. Browder and his business partner, Edmond Safra, founded Hermitage Capital Management and launched its first fund, Hermitage Fund, in 1996. Between its inception and December 2007, Hermitage Fund achieved returns of 2,697% for its investors.