Fridman hires BoA Merrill Lynch Russian head to run UK assets

 Fridman hires BoA Merrill Lynch Russian head to run UK assets
The warchest of Mikhail Fridman's London-based LetterOne is mainly derived from the proceeds of the 2013 sale of the Alfa Group’s Russian oil company TNK-BP.
By Jason Corcoran in London January 18, 2018

Russian oligarch Mikhail Fridman has hired Alexander Pertsovsky, the head of Bank of America Merrill Lynch’s Russian operation, to run his UK assets, which are in excess of $16bn, bne IntelliNews can reveal.

Pertsovsky, who announced he was stepping down in October from the helm of the Wall Street bank in Moscow, joined Fridman’s LetterOne operation based in London earlier this month, according to a UK regulatory filing obtained by bne IntelliNews. 

Pertsovsky, who has been appointed the managing partner of L1 Technology, had been Russia country head for five years at Bank of America Merrill Lynch. The Russian banker, a Columbia Business School graduate, is very experienced and had previously headed the Renaissance Capital investment bank and its parent Renaissance Group for a decade.

Pertsovsky, who didn’t reply to emails seeking comment, is believed to have been frustrated by Bank of America’s lack of ambition in Russia. The Russian banker had understood that the US lender would acquire a domestic banking license in 2014 or 2015 so it could access ruble-denominated fixed-income markets. However, US sanctions imposed against Russia greatly restricted the activity of all Wall Street players in Russia by curbing their risk appetite.

An official London source refuted the suggestion that Pertsovsky's departure was linked to a lack of ambition in Russia on behalf of the US bank, which has its headquarters in Charlotte, North Carolina. 

Fridman, one of original oligarchs under Boris Yeltsin, moved his operations to London two years ago even after President Vladimir Putin called on Russia’s high-net worth individuals to repatriate their wealth.

Fridman, who became tax resident in the UK in 2016, retains an office in London’s old money Mayfair district. His LetterOne’s war chest for acquisitions is mainly derived from the proceeds of the 2013 sale of the Alfa Group’s Russian oil company TNK-BP.

The key to Fridman keeping on side of the Kremlin has been his suave partner Petr Aven, who joined Alfa in 1991 after serving as Russia’s foreign minister.

Aven regularly meets with Vladimir Putin at the Russian president’s Novo-Ogarevo residence and was even conferred with a state award for corporate citizenship personally by Putin in May 2016. The late Boris Berezovsky, who was once known as the Godfather of the Kremlin, once admitted that it was Aven who introduced him to Putin. 

A former Alfa executive told bne IntelliNews that Fridman and his partners were allowed to keep the $14bn proceeds of their sale of TNK-BP offshore. “Abramovich was allowed to keep his proceeds from the sale of SibAl and Sibneft, and Fridman/Alfa were allowed to too,” said the former Alfa executive. “This is probably driven by their personal relations with Putin.”

Fridman, who was dubbed the Teflon Oligarch by bne IntelliNews for his survival skills, is a regular on the London party and arts scene, but still travels back to Russia where he retains significant holdings in the retailer X5, VimpelCom as well as Alfa Bank, Russia’s largest privately-held lender.

London Letterhead

The L1 Technology Team is responsible for the sourcing, screening and presenting of investment opportunities for approval by its board, as well as the strategy and operational performance of the existing investment portfolio. The team is supported by an independent Advisory Board, which includes the former founder of Brent Hoberman, Ireland’s richest man Denis O’Brien and Osama Bedier, CEO of the payments startup Poynt.

LetterOne has been busy ploughing the TNK-BP proceeds into overseas energy, telecom and technology assets like ride-sharing app Uber. The fund spent $1.6bn on E.ON’s oil and gas assets in the North Sea only after the UK government forced it to sell its North Sea fields in the country because of the risk of facing Russian sanctions.

In 2017, LetterOne closed two major transactions by buying the iconic English healthy food chain Holland & Barrett for $2.3bn and investing $3.0bn in Pamplona Capital Management, the private equity operation owned by Alexander Knaster, a former partner of Fridman’s in Moscow. Fridman has also invested $200mn in Uber, the controversial ride-sharing app.

Meanwhile Alfa Bank, Fridman’s Russian lender, has emerged as one of the last men standing in terms of the country’s large privately-controlled lenders. Alfa’s main competitors, including Otkritie, B&N Bank and Promsvyazbank, have all been bailed in out by the Russian state in deals worth a combined RUB1 trillion over the past five months.

The Ukranian-born tycoon might be worried about his teflon personna losing its grip. A Russian newspaper published a list of 300 oligarchs, including Fridman, who might be included in new US sanctions. 

Fridman has stopped working with the Russian defense ministry as a precaution but that might not be sufficient. His Alfa business was cited in the infamous dossier of former British spy Chistopher Steele that was published by BuzzFeed last year.

It states that Alfa allegedly carried out President Putin's orders and helped interfere in the US Presidential elections. Alfa is currently suing BuzzFeed

Fridman began his own business career by starting a window-washing business in Moscow with classmates. There was little competition for his business, but when it became more competitive, he and his partners moved on to selling consumer goods, and established their own bank to provide themselves with capital and currency.

“We lived in a country with no tradition of doing business, with no property rights,” Fridman told Yale students in November last year about the obstacles that he and his partners faced.

Fridman said the formation of LetterOne, which manages a massive pot worth $23bn, was driven by the large increase in state-run businesses in Russia, and the desire to invest abroad.

In a rare interview with the foreign press, Fridman told the Financial Times over lunch last year that he is on a mission to improve the image of his country’s business elite. “It’s our moral duty to become a global player, to prove a Russian can transform into an international businessman,” he said.

But a straw poll of Moscow analysts uniformly guffawed upon hearing of Fridman’s elevation to a figurehead for good Russian corporate governance on the global stage. “Fridman is no Mary Poppins,” a leading Moscow-based strategist told bne IntelliNews. “He’s clearly moved to London to run his fast-growing overseas portfolio.”