This article reviews the book Red Notice written by Bill Browder. The author, Browder, popularized the strategy of investing in corrupt companies and using activism to fight the corruption.
Indeed, this book is more about corruption in the Russian business environment than it is about finding undervalued companies. Nevertheless, Red Notice 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
In the beginning, readers learn of Mr. Browder's background which sets an important contextual setting. 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 underwent the privatization of its businesses after the fall of the Soviet Union. Seemingly overnight, a small group of young men became billionaires during the Russian privatization. Specifically, the structure of the program allowed them to arbitrage Russia's voucher-privatization program. Indeed, this group of young men are the powerful Russian oligarchs commonly referenced in geopolitical news.
Hermitage Capital Investment Strategy
Hermitage Capital's strategy was simple, albeit brilliant. Invest in Russian companies corrupted by the oligarchs/government and engage in public campaigns to stop the corruption. For a few years, this strategy worked well because Putin was still working to gain power over the oligarchs. Therefore, the public campaigns against corruption coincided with Putin's interest because the campaigns allowed the Russian government to intervene in the activity of the oligarchs. However, once Putin consolidated power over the oligarchs, Hermitage Capital's corruption campaigns differed from Putin's interests.
Corruption in Russia & Sergei Magnitsky
At this point, 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. In one such perilous situation, Browder's team faced an unbelievable tax evasion charge. In response, Browder 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. In the end, his efforts paid off. In 2012, the US Congress passed the Magnitsky Act. 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.