Hermitage Capital Management

Hermitage Capital Management is an investment fund and asset-management firm established in 1996 by Bill Browder and Edmond Safra. It was created to invest principally in Russian securities during the period when Russia's post-Soviet capital markets were opening to international investors. The firm's principal vehicle, the Hermitage Fund, became one of the best-known foreign investment funds focused on Russia. According to the firm's Wikipedia account, the fund generated a cumulative return of 2,697 percent from its creation through December 2007, a performance that made Hermitage unusually prominent among emerging-market investors. Hermitage developed an activist-investment model rather than acting solely as a passive portfolio holder. It argued that poor corporate governance, asset stripping, conflicts of interest and corruption depressed the value of Russian listed companies. The firm therefore used its shareholder position to investigate corporate practices, publicize alleged abuses and press managements or regulators for change. Its campaigns involving Gazprom between 1998 and 2000 became the clearest example of this approach. Hermitage argued that the market was applying a substantial discount to Gazprom because investors believed that much of the company's value was being diverted or misappropriated. The firm treated disclosure and public pressure as investment tools intended both to improve governance and to narrow the valuation discount. The firm's relationship with Russia deteriorated sharply during the 2000s. Browder, who had initially supported Vladimir Putin's efforts to impose greater order on the Russian state, was denied entry to Russia in November 2005 after being designated a national-security threat. Hermitage subsequently became involved in disputes involving Russian police raids, the seizure of corporate records and allegations that its Russian investment structures had been taken over through fraudulent legal and administrative proceedings. In 2007, police raided the Moscow offices of Hermitage and its law firm, taking documents and computers. Sergei Magnitsky, a lawyer and tax specialist working with Browder's representatives, investigated an alleged tax-fraud scheme connected with the use of documents and corporate entities associated with Hermitage. Magnitsky was arrested, held for approximately eleven months and died in a Moscow prison on 16 November 2009. Magnitsky's death transformed Hermitage from a specialist investment brand into an internationally recognized political and legal campaign. Browder and people associated with the firm pursued investigations and sanctions against individuals they held responsible for the alleged fraud, detention and mistreatment. This work helped inspire the United States Magnitsky Act and similar sanctions regimes in other jurisdictions, although Russian authorities have disputed Browder's account and pursued criminal cases against him and associates. Hermitage also expanded beyond Russia. In April 2007 it launched Hermitage Global, an activist fund focused on global emerging markets. The firm later changed its structure and returned outside capital to investors. Since 2015, it has operated as a London-based family-office hedge fund with an emerging-markets orientation. The firm has also been associated with offices or operations in the Cayman Islands, London and Moscow, while its stated headquarters are in Guernsey. Ivan Cherkasov is identified as its chief operating officer. The brand's modern identity therefore combines investment management, activist research, investigations into alleged financial misconduct and advocacy connected with the Magnitsky case.

Hermitage Capital Management was founded in 1996 by Bill Browder and Edmond Safra to invest in the newly developing Russian capital markets. Its principal vehicle, the Hermitage Fund, pursued concentrated positions in Russian companies and became particularly known for its activist approach to corporate governance. Rather than treating governance failures as an unavoidable feature of emerging markets, Hermitage argued that corruption, related-party transactions and diversion of corporate assets created a measurable discount in public-company valuations. By researching and publicizing alleged abuses, the firm sought to improve managerial conduct and increase the value of its holdings. The firm gained prominence through campaigns involving Gazprom between 1998 and 2000. Hermitage challenged the treatment of minority shareholders and alleged that the company's market value was depressed by the diversion or concealment of assets. This work established the firm's reputation as an activist investor willing to confront powerful Russian companies publicly. The strategy was financially successful for much of the fund's early life; the Hermitage Fund was reported to have returned 2,697 percent from 1996 through December 2007. Browder's relationship with the Russian government changed during the 2000s. Although he had initially supported Vladimir Putin's efforts to restore state authority, Russian officials barred him from entering the country in November 2005 and designated him a national-security threat. Hermitage maintained that the decision was linked to its investigations into corruption and the interests of officials and businesspeople. In 2007, Russian police raided the Moscow offices of Hermitage and its law firm, taking corporate records and computers. Hermitage and its lawyers alleged that the seized materials were later used to take control of three Russian companies associated with the firm and to support fraudulent tax claims. Sergei Magnitsky, a lawyer and tax adviser who worked with Browder's representatives, investigated the alleged misuse of Hermitage-related documents. He was arrested on tax-fraud allegations and held for approximately eleven months. Magnitsky died in a Moscow prison on 16 November 2009. His detention and death became the defining event in the later history of Hermitage. Browder and the firm pursued a worldwide campaign seeking investigations, asset freezes and visa restrictions against people they believed were involved. The campaign became closely associated with the Magnitsky Act in the United States and with comparable targeted-sanctions laws elsewhere. Russian authorities have rejected or disputed major elements of Browder's account and have brought criminal cases against Browder and associates. Hermitage attempted to broaden its investment mandate in April 2007 with the launch of Hermitage Global, an activist vehicle focused on global emerging markets. The firm's Russia business later contracted. In 2013 it closed its Russian fund, which had reportedly held more than $4 billion in assets under management in 2005 but was valued at less than $60 million by the time of closure. The closure generated a dispute involving investors and HSBC, which had served as manager and trustee. Since 2015, Hermitage has been described as operating as a London-based family-office hedge fund after returning outside capital, while retaining an emerging-markets investment focus. The firm has been associated with offices or operations in Guernsey, the Cayman Islands, London and Moscow. Ivan Cherkasov is identified as chief operating officer.

1. 2015Firm operates as a family-office hedge fund

   Hermitage is described as having returned outside capital and continuing as a London-based family-office hedge fund.

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2. 2013Russian fund closed

   Hermitage closes its Russia-focused fund amid a major reduction in assets and a dispute involving investors and HSBC.

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3. 2009Magnitsky dies in detention

   Sergei Magnitsky dies after being held in a Russian prison, leading to an international campaign associated with Hermitage and Browder.

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4. 2007Hermitage Global launched

   The firm launches a global emerging-markets activist fund.

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5. 2007Moscow offices raided

   Police raid Hermitage and its associated law firm, taking documents and computers.

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6. 2005Browder denied entry to Russia

   Russian authorities bar the firm's founder and classify him as a national-security threat.

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7. 2000Gazprom campaign intensifies

   The firm continues its public analysis of alleged asset diversion and the governance discount affecting Gazprom.

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8. 1998Gazprom activist campaign begins

   Hermitage begins publicly challenging governance and valuation issues at Gazprom.

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9. 1996Hermitage Capital Management founded

   Bill Browder and Edmond Safra establish the firm to invest in Russian markets.

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An activist emerging-markets investment manager that combines concentrated investing, governance research, public corporate campaigns and investigations into alleged corruption or asset diversion.

• Hermitage FundRussia-focused hedge fund1996

  The Hermitage Fund was the firm's principal investment vehicle, created in 1996 to invest in Russian companies and securities. It used concentrated research and activist shareholder tactics, particularly around corporate governance, alleged asset diversion and minority-investor rights. The fund became known for its Gazprom campaigns and for exceptional reported returns during its early operating period. Hermitage closed the Russia-focused fund in 2013 after a substantial decline in assets and a shift in the firm's operating model.

• Hermitage GlobalGlobal emerging-markets activist fund2007

  Hermitage Global was launched in April 2007 as an expansion beyond the firm's Russia-centered strategy. It focused on activist investments in emerging markets worldwide, applying Hermitage's established method of combining fundamental research, governance analysis and public engagement with portfolio companies.

• 2009Magnitsky accountability campaign

  United States · Europe · Russia · International

  Following Sergei Magnitsky's death in Russian detention, Browder and people associated with Hermitage campaigned for investigations and targeted sanctions against officials and other individuals they alleged were connected with the case.

  Outcome. The campaign contributed to the adoption of Magnitsky-style sanctions in the United States and other jurisdictions, while remaining strongly contested by Russian authorities.

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• 1998Gazprom corporate-governance campaign

  Russia

  Hermitage used its position as an investor in Gazprom to publicize alleged corporate corruption, asset diversion and failures to protect minority shareholders. The campaign argued that these practices materially reduced the company's market valuation.

  Outcome. The campaign made Hermitage internationally known as an activist emerging-markets investor, although the source material does not establish a single definitive corporate outcome.

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• 2013Close Russia-focused fundStrategy

  The firm's Russia fund had contracted substantially from its earlier asset peak amid the deteriorating operating and political environment.

  What changed. Hermitage closed its Russian fund and subsequently returned outside capital to investors.

  Aftermath. By 2015, the firm was described as operating as a London-based family-office hedge fund with an emerging-markets focus.

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• 2007Expansion into global emerging marketsStrategy

  After building its reputation through Russia-focused activism, Hermitage sought to apply its investment and governance-research model in other emerging markets.

  What changed. The firm launched Hermitage Global in April 2007.

  Aftermath. The launch broadened the brand's stated geographic mandate beyond Russia, although the available source does not provide detailed performance data for the vehicle.

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• 2017Russian convictions in absentiaControversy

  A Russian court sentenced Bill Browder and Ivan Cherkasov in absentia over tax-evasion allegations and claimed damage to the Russian federal budget. Browder and supporters have characterized the proceedings as politically motivated.

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• 2013Closure of Russian fund and investor disputeControversy

  The closure of Hermitage's Russia-focused fund led to a dispute between investors and HSBC in connection with HSBC's role as manager and trustee.

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• 2009Sergei Magnitsky detention and deathControversy

  Magnitsky was detained on tax-fraud allegations after investigating a scheme that Hermitage said involved the misuse of its corporate documents. He died in prison after approximately eleven months in custody. The circumstances remain politically and legally disputed.

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• 2007Raids and alleged corporate seizureControversy

  Hermitage said that Russian police raids on its offices and associated legal offices enabled the later fraudulent takeover of three companies connected with the firm. The allegations became part of the broader dispute between Hermitage and Russian authorities.

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• 2018Browder detained briefly in Spain

  Browder was briefly detained in Spain after a Russian arrest request was circulated through Interpol mechanisms; he was subsequently released.

  LawsuitRegulation
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• 2013Hermitage closes its Russian fund

  Hermitage closed its Russia-focused fund after its assets had fallen substantially from their earlier peak, prompting a dispute involving investors and HSBC in its role as manager and trustee.

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• 2007Hermitage Fund records exceptional long-term performance

  The firm's Russia-focused Hermitage Fund was reported to have gained 2,697 percent between its creation in 1996 and December 2007.

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• 2005William Browder barred from entering Russia

  Russian authorities designated Browder a national-security threat and denied him entry, sharply escalating the conflict between the investor and the Russian state.

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1. Hermitage Capital Management
2. They Killed My Lawyer: A story of Putin's Russia