Ben Aris in Moscow -
Legendary investor Jim Rogers should rue the day he took on Dmitry Alimov, a 29-year-old Russian MBA student, during a talk he gave at Harvard Business School in 2003. Rogers disparaged Russia as a hopeless case just as the economy was starting a five-year boom. Alimov stood up at the end of the talk and took issue with Rogers, following up with an email exchange that was so widely circulated it ended up as an article in The New Yorker magazine. Rogers wrote Alimov off as a know-it-all neophyte, but nine years on and Alimov has just launched a tech fund, and is well on his way to becoming a prominent member of Russia's third wave of tycoons.
Today, Alimov is unabashed about his very public run-in with one of the world's most famous investors. Rogers is best known as a co-founder of the Quantum Fund, which he set up with George Soros and "broke the Bank of England" by forcing the British out of the European Exchange Rate Mechanism in 1992, making the two men billionaires in the process. "Rogers was talking about Russia and running it down. But the problem was not what he was saying, but the fact that he clearly didn't know what he was talking about. So I wrote an email to him to correct the factual errors, copying the email to a few Russian-speaking friends at the school," says Alimov.
The subsequent email exchange was hilarious and as Alimov copied in his fellow Harvard collegues, it quickly spread around the world, reaching trading desks in Moscow, New York and London before the press eventually picked up on the story.
Alimov may have been a student, but he was no greenhorn. He began his career as an analyst with Renaissance Capital in 1998 under the head of investment banking Leonid Rozhetskin (who was later murdered at Jurmala, Lativa in March 2008) before moving on to work for the bank's founder Boris Jordan at the $500m Sputnik Fund after the 1998 crisis. Rogers clearly underestimated Alimov when locking horns with him. "I guess I was rather aggressive and for several weeks after the [The New Yorker] article my apartment turned into a mini PR agency, as I had to answer hundreds of calls and thousands of emails from the media," says Alimov, sitting in a cafÃ© next to the Stalin skyscraper at Barrikadnaya in central Moscow. "But it ended up doing me a lot of good, as I met several very interesting people as a result."
Facts and a good story
The email exchange between the two began politely enough. Alimov sent a reasoned email that went through his counter arguments to Roger's statements, backed up with statistics and citations. "I am the 'lad' who disputed your factual claims with regard to Russia today," Alimov began, going on to highlight three specific allegations that Rogers had made: people are leaving Russia ("wrong"); Russia's oil production is declining, and oil companies are not reinvesting ("wrong and wrong"); investors are abandoning Russia ("wrong again").
Following Russia's 1998 financial crisis, the devaluation of the ruble had jumped-started the economy. GDP growth had turned positive for the first time since the collapse of the Soviet Union and was up 10% in 2000 alone (a record that stands to this day). The oil companies were flourishing with double-digit production growth and in 1999 Lukoil invested more into the sector than the entire sector had ever invested before in a single year. And the tide of portfolio investors had just made Yukos owner Mikhail Khodorkovsky the richest man in the world under 40 years old.
While in 2003 some black clouds had appeared on the horizon (Khodorkovsky was arrested at the end of the same year), when Rogers made his speech Russia had never looked as good since the investment story began in 1991. "Many people, including future leaders at Harvard Business School, listen to you," Alimov concluded in his email. "It would be very unfortunate if they were misled by your inaccurate statements. Finally, if nothing else, it is not good for your own public image."
A few days later, Rogers replied, beginning with: "Thank you for coming [to my talk at Harvard Business School] and for writing. I rarely suffer fools gladly and even more rarely bother with chauvinistic know-nothings, but since you sent this ludicrous canard..." He then launched into a furious rebuttal, peppered with phrases like this one as the introduction to a comment on Russia's positive trade balanc: "Oh my. You really should have kept your mouth shut and stopped long ago."
What made this exchange so amusing is that Alimov replied and countered, point for point, with indisputable evidence Roger's attempt to rubbish Alimov's arguments. On the trade balance point, Alimov wrote: "The quote below is taken directly from US Department of Energy website (I hope you at least believe your own government). Or do you think the US government is also lying?"
As the exchange continued, the emails became more and more widely distributed until Rogers, who had made a complete fool of himself, finally gave up and stopped replying. "I don't know why I even bothered to answer that guy in the first place," Rogers told a reporter who finally caught up with him. "Whether oil production is up five or six per cent is pretty meaningless in the context of this discussion, which was, and is, that Russia's a hopeless place to invest."
Where is he now?
The whole Rogers-Alimov exchange highlights a problem that plagues Russia's veteran investors to this day. With the fastest economic growth in Europe, the best performing stock market year to date, the third highest gross international reserves in the world and a top-three European consumer market, Russia is far from being hopeless, yet it's difficult to get this message out given the very volatile nature of the economy. The problem of senior investment figures like Rogers, who patently haven't done even the most basic research on Russia, blithely condemning the country out of hand on the basis of half-digested impressions drawn largely from reading the international press, is as big today as it was in 2003.
The irony of the whole affair is that Alimov is living testimony to the changes going on in the country. During his time at Sputnik, Alimov was in charge of dealing with the broadcaster NTV that was taken over by Gazprom Media following Vladimir Putin's election as president in 2000 and the subsequent attack on the oligarchs. Gazprom Media was given to Jordan to manage and Alimov did the work. "That was a mad time," says Alimov. "I was in charge of generating revenue, but we had some regions like Novosibirsk, where the local station manager would screen out the ads we sold in Moscow and replace them with an ad for some local business, like a car repair shop, and pocket the money."
Among the assets Jordan inherited was TNT, a small broadcaster on the brink of bankruptcy. Jordan put Alimov, still in his mid-20s, in charge and within two years he had managed to turn it around. Today, TNT is one of Russia's leading commercial broadcasters. However, Alimov got bored and after taking a break to study for an MBA at Harvard in 2002, he returned to Russia and was immediately offered a job by one of the "interesting people" he met as a result of his newfound fame from the email duel, Len Blavatnik.
Blavatnik is a Russian-born US resident who is currently ranked number 72 on the Forbes rich list and his Access Industries is one of the shareholders in the British-Russian oil joint venture TNK-BP. Blavatinik put Alimov in charge of Amedia, a TV and film production company. "It was a simple model. We took a successful format in other countries and adapted them to the Russian market. The series was more likely to succeed if it had been proven to work elsewhere, but we always did deals with the owner either as a collaboration or paying a license fee," says Alimov, who remains a close friend of Blavatnik's.
By the time Alimov struck out on his own again in 2006, A Media was turning over $60m a year. Alimov, who had a stake in the company, finally had some real money in his pocket and cast about for something new to do. "I first majored in computers and maths, so I pretty quickly came to the internet. In 2007, I became business partners with the co-founder of ru-Net, who asked me to come in and run its Internet investments," says Alimov.
RuNet was one of the pioneers of the Russian internet and by 2006 the number of users was doubling every 18 months or so. Today, a third of Russians are online, and nationwide broadband internet access with a speed of 50 megabits per second will be available to all Russian homes by 2015, according to telecom giant Svyazinvest's deputy CEO, Mikhail Leshchenko. Alimov and his partners began developing companies to bring Russia into the 21st century. Their most successful venture was ivi.ru - a site that airs out-of-copyright movies for free, but makes money on the advertising. According to a recent survey, 97% of Russians online use the internet to watch movies. "The model for this type of business in Russia is a bit different," says Alimov. "Because of the widespread piracy, there is no way to make people pay for access for content (although now we have some Hollywood blockbusters that are paid for), so for most of the films the revenue is generated from advertising, but for the user it is free."
The site has been a smash and is the market leader for legal movie distribution in Russia, although the legitimate business remains dwarfed by the rampant piracy. However, accession to the World Trade Organization in December means the issue of piracy is slowly being addressed.
In 2008, Alimov moved again, cashing out of RuNet in which he held a stake. In January, he launched Frontier Ventures, a fund aimed at Russia's burgeoning e-commerce business that has already raised $50m. "We are looking to invest into five or ten projects and looking for ideas based on an established business model," says Alimov. "These are not clones - that is an over-simplification, as you have to take the ideas and adapt them to the Russian realities."
The timing for the fund is good, as the Russian internet is growing very fast and, according to bne estimates, the e-commerce sector could be worth as much as €103bn by 2019. "Now people are not just looking at pictures, but they are spending tens of billions of dollars. And it is only starting to grow now," says Alimov. "I estimate that the market has another 10-15 years to run before it starts to reach maturity. The first entrepreneurs are taking their early steps, but the risk/rewards in Russia are better than elsewhere. What could be more fun?"
And Rogers? At the start of April, he told a investment conference in Budapest: "I expect the price of gold to decline and when that happens I will buy more." It may not be a stupid move, but what could be more boring than that?
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