Kids of Russia's billionaires charge into business

By bne IntelliNews September 14, 2015

Ben Aris in Moscow -


It's been just under a quarter of a century since the fall of the Soviet Union and in that time a relatively small group of men have become fabulously wealthy in the rough and tumble of Russia’s “wild capitalism”. 

As most of Russia’s tycoons are approaching their 60s they are thinking about retiring – and handing over their businesses to their now grown-up children. An increasing number of prominent names followed by the moniker “junior” are appearing in business, as the children of the rich get ready to take over. 

More worryingly, nepotism is rife in Russia and inexperienced twenty-something sons of tycoons regularly pop up doing deals with hundreds of millions of dollars – and usually fail to make the deal work. The problem is even worse at state-owned companies where the heads of departments on fat salaries owe more to their surname than they do to their CV for the position they hold. Amateur management is wasteful, but many of these progeny of the powerful are more cynical: bne IntelliNews has several anecdotal reports of a son or nephew taking over an important department in a state-owned company, only to immediately cancel long-term supply contracts with established partners simply so a fresh kick-back deal can be cut with the new boss. 

Smolenskys and flogging dead donkeys 

In his day, Alexander Smolensky was Russia’s most successful banker, founding SBS Agro, the non-state retail banking giant. As one of the “authorised” banks entitled to hold budget money, he used delayed payments to speculate against hyperinflation and make billions on the process. 

One of the leading Yeltsin-era oligarchs, he left the country after his bank collapsed and Vladimir Putin took over the presidency, famously saying on his way out that he owed his investors only “dead donkey ears”. 

Smolensky has barely been in the press since, but his 35-year-old son Nikolai caused a stir in the UK in July 2004 when he bought the iconic British sports carmaker TVR for a reported £15mn and attempted to resuscitate the brand. After pumping millions of pounds into the company he finally conceded defeat nine years late, selling out to British entrepreneur Les Edgar for an undisclosed sum. 


Kerimov creaming off the old block 

At the start of September, 20-year-old university student Abusaid Kerimov was reportedly leading a $5.4bn bid to buy out the remaining 60% shares of the leading gold producers his two holding companies don’t already own. This would be his second deal this year after buying the Cinema Park chain of movie theatres from oligarch Vladimir Potanin for a reported $400m. 

The deal becomes slightly less remarkable when you realise this is the son of Suleyman Kerimov, a billionaire member of the upper house of the Russian parliament worth $4.9bn, according to Forbes.

Kerimov Senior obviously has an interest in helping his son get going in his career – Abusaid is studying business at Moscow’s prestigious MGIMO university – but he also needs to cut his direct ties with business under new “de-offshorisation” rules pushed through by President Putin last year. 

Abusaid is reportedly considering offering shareholders $2.97 per share for the rest of the stock, which jumped on the news to just over $3.00. Given the poor track record that almost all the sons of oligarch’s have in business, the shares might have been expected to fall. 

The ABC of KGB family business

So far, the only really successful oligarch son is Evgeny Lebedev, 35, whose father Alexander Lebedev was KGB station chief in the UK before the 1991 Soviet collapse. Never counted as one of the seven original oligarchs, the senior Lebedev nevertheless made his money in the 1990s as the owner of National Reserve Bank (NRB), which used to have close ties to Gazprom. Like most of the leading banks, NRB was also almost destroyed in the 1998 crash, but Lebedev hung on to his investments and by the middle of the noughties he was rich again, worth an estimated $2bn. 

The outspoken Lebedev has always been seen as something of a quisling by the Kremlin and he got on so badly with the Putin administration he eventually moved to London and took over the Evening Standard and Independent newspapers in 2004. 

It is actually his son’s signature that is on both those deals and Evgeny runs the papers today with mixed results. In a radical move, he made the Evening Standard free and trebled its circulation, putting it back into profit. But he has had less success with the Indie, which is still losing money. 

Lebedev Jnr has all the trappings of a successful proprietor. Liz Hurley and Prime Minister David Cameron come to his parties and he has a penchant for very rare Rolls Royces and iconic Italian villas. As an occasional contributor to his papers, he comes in for regular ribbings by the likes of the sardonic Private Eye, while on the business front he has a reputation for very grand, yet very expensive and usually unsuccessful gestures.

The Independent decided that it would get into online TV, but instead of hooking up with one of the highly skilled but under-employed independent TV studios that litter London, Evgeny built an entire state-of-the-art studio in the Independent’s building. “We don’t do joint ventures,” he dismissively told a bne IntelliNews source in the company when challenged. However, London Live has proved to be one of his more notable business flops; in June, parent company ESI Media announced a loss of almost £12m in the year to the end of September.


Yakunins on the right track

Another recent addition to the fold is Andrei Yakunin, son of the recently retired head of Russia’s Railway (RZhD) Vladimir Yakunin. A former Russian diplomat to the EU, Yakunin Snr was appointed head of RZhD by Putin where he has overseen a massive investment programme that ran into tens of billions of dollars a year since it was launched in the midst of the 2008 economic crash. As usual, it is not clear where Yakunin made his money, as he has been a public servant all his life, but opposition blogger Andrei Navalny caused a mild scandal when he released aerial photos of Yakunin’s 7,000-square-metre palatial residence  in the Moscow suburb of Akulinino, worth well over $10mn. Indeed, Navalny claims many of Yakunin’s family members live in luxury accommodation abroad. 

Yakunin Jnr arrived on the Moscow business scene over the last few years with a string of deals with the $250mn VIYM private equity fund that he started with a school friend of his, he told bne IntelliNews over lunch. 


Of all the children of the super-rich, Yakunin currently looks like the most competent businessman. The fund’s investments, usually minority blocking stakes, in a series of practical and down-to-earth businesses should to do well in the long run, whatever the state of the economy or the status of the EU-imposed sanctions. Amongst the portfolio companies are a toilet paper manufacturer, a hand-made chocolate maker and mid-sized private medical services provider. 

It is still too soon for any of these investments to come to market, so it is impossible to judge how savvy a businessman Yakunin is, but from a strategic point of view all the investments make a lot of sense and should do well. 

Strings working at full pull

At least all these children have been trying to build something new. Far more common is for well-connected fathers to pull strings to land their offspring cushy jobs in big organisations. Nepotism is rife in Russia. 

At the start of 2015, Peter Fradkov, the 37-year-old son of former Russian prime minister and the current head of Russia's SVR Foreign Intelligence Service Mikhail Fradkov, was appointed first deputy chairman of Vnesheconombank (VEB), Russia’s de facto development bank. 

Prior to this top job, the younger Fradkov’s resume includes a six-month training course in Italy, two years working at the Far Eastern Shipping company, and a stint running the Russian Agency for Export Credit and Investment Insurance (EXIAR). Likewise, the late Alexander Ivanov, son of the current chief of staff of the presidential administration Sergei Ivanov, also worked for VEB, before moving to the state-owned banking giant VTB and then returning to VEB. “Frankly speaking, there are more attractive financing institutions than VEB whose employees’ salaries are a lot lower than those in banks with the state’s participation and obviously in private commercial banks,” said VEB’s CEO Vladimir Dmitriev, when asked why he had so many children of powerful politicians working for him. 

(Having weathered intense scrutiny about the state’s handling of a fatal traffic accident in 2005 – Alexander Ivanov ran over and killed an elderly woman by a pedestrian crossing at high speed, but the investigation was closed after witnesses withdrew statements – the banker drowned in the sea in November 2014 aged 37 while vacationing in the United Arab Emirates.) 

The Rotenbergs and not-so-jolly hockey sticks

Reflecting the accompanying windfalls – and pitfalls – for oligarch offspring these days, sanctioned Russian billionaire Boris Rotenberg, whose even more billionaire brother Arkady is a judo pal of Putin's, sold their majority stake in Finnish hockey team Jokerit and its home stadium to his 33-year-old son Roman last October as the Western sanctions regime kicked in. Roman Rotenberg, a dual Russian-Finnish citizen, is also vice president of St Petersburg's SKA ice hockey club. (Pictured below in YouTube screenshot being interviewed by celebrity Russian socialite turned journalist and opposition activist Ksenia Sobchak).

The Jokerit transfer had been in the works for some time, but was delayed when sanctions were foisted on his father and uncle, Roman told Finnish newspaper Helsingin SanomatThen Rotenberg Jnr also came under fire amid the current row with Russia over Ukraine: In July, he was added to the list of individuals sanctioned by the US, prompting Finland to ask why one of its citizens had been targeted. According to the US Treasury, Roman Rotenberg and his family's hotel business, Langvik Capital Ltd, have been linked to the provision of "material support" to his father, therefore meriting his inclusion in the list too.

(Meanwhile, Roman's brother Boris, 29, plays for Moscow football team Dinamo and has even been called up to Finland’s national squad, having been raised in Finland. "Then again, if your father is the chairman of the club you play for – and, along with your uncle, is amongst Russia’s richest men – maybe anything is possible," as one commentator wrote.) 

Power and politics 

A few of the elite scions have eschewed the business path and chosen to go into politics instead. Nor do these necessarily trumpet their connection to wealth or power. 

Pavel Khodorkovsky, the 30-year-old son of the formerly jailed oil tycoon Mikhail Khodorkovsky, is the founder of the Institute of Modern Russia, a political lobbying group-cum-think tank that funds the anti-Kremlin online newspaper The Interpreter, among other things. 


Likewise, one of Putin’s two daughters, Ekaterina Tikhonova, 29, surfaced earlier this year in a YouTube video of her dancing at a rock & roll competition. Reportedly, she has been using her mother's maiden name, Tikhonova, but a stampede by local journalists to find out more unearthed the fact that she is also the head of an academic institute with a $1bn budget to expand the famous Moscow State University. The Kremlin does not comment on the president or his family private life, was the terse reply to press demands for confirmation. 

Ksenia Sobchak, bearded belle of the opposition

Probably the most high profile of all the elite children is Ksenia Sobchak, 34, known as the Paris Hilton of Russia, the glamorous daughter of Putin’s one-time boss, the late St Petersburg mayor Anatoly Sobchak. 

Although a few daughters of the elite have made something of a name for themselves, Sobchak was undisputably Russia’s first “It girl”, with her face gracing magazine covers and television screens for years. bne IntelliNews once interviewed her in a beauty salon just off Red Square in the middle of winter before going outside to take some photos. The interview ended up being more like a fashion shoot as she responded better to the camera than the questions. 

Where Sobchak’s money came from is not clear (but easily guessed), as a mayor’s inheritance wouldn’t cover the furs and chiffon she wore on the day of the interview. But she has had several wealthy lovers including Umar Drubailov, an ethnic Chechen who ended up as owner of Moscow’s Radisson Slavyanskaya hotel after its founder, US entrepreneur Paul Tatum, was gunned down near the hotel in 1996. 

Sobchak now seems to have put her frivolous ways behind her and reinvented herself as a credible member of the nascent opposition movement. During her relationship with opposition activist Ilya Yashin and took the stage during the December 2011 Bolotnaya square protests, saying: "My name is Ksenia Sobchak and I have something to lose, but nevertheless I am here." Since then she has been a voluble critic of Putin, who she has known since she was a child at a time when it was not clear if there would be political blowback from such an outspoken line. 

And there was blowback. Sobchak was one of several opposition leaders whose home was raided early on June 9, 2012, just before a "March of the Millions" was due to be held in Moscow. Police found and confiscated “no less than €1mn placed in more than 100 envelopes” from the apartment, money that Sobchak did not deny was hers. Sobchak faced down the prosecutors with typical flare, appearing in a TV advert shortly afterwards that lampooned the search: in the TV version, the police officers confronted her with the same shoe boxes, except this time they only held the credit cards of a well-known bank. 

Sobchak caused a minor scandal in April when she posted a photo of herself on social media dressed as an Orthodox priest, complete with fake flowing beard. State officials in June launched a probe into whether this violated new and controversial blasphemy legislation passed after the Pussy Riot cathedral punk music scandal. 


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