Original Article

A Tsar is born - How a boy from Taranaki found Russian gold
by Matt Nippert
The New Zealand Listener
August 11-17 2007 Volume 209 Number 3509

Who is New Zealand's richest man? Billionaire takeover king Graeme Hart? Warriors owner Eric Watson? Fund manager Richard Chandler -- or his equally wealthy brother Christopher?

None of the above, says Jules Evans. The Moscow-based journalist recently interviewed Stephen Jennings for the British magazine the Spectator and his subject, a Kiwi expat who runs the Moscow-based global investment bank Renaissance Capital, is described by a fellow banker as the "only foreign oligarch in Russia".

Evans says Jennings is "a major player in Russian finance, perhaps the leading Russian broker -- and Russian finance is very big business".

Two years ago the London-based weekly paper Financial News, which annually ranks the most influential people in European capital markets, flagged Jennings as a "rising star". Last year he entered the top 100 in 92nd place: this year he's 76th.

Renaissance has offices in New York, Geneva, Dubai, Hong Kong, London and Lagos and dominates the Ukrainian sharemarket from Kiev. And this year it began expanding into sub-Saharan Africa.

Having been told by Jennings that his stake in the unlisted business is 80 percent, Evans has calculated that the boy from Taranaki could be worth as much as $6 billion.

If that's true, then it would make the virtually unknown Jennings -- whose name has graced the pages of our leading newspaper, the New Zealand Herald, only three times in the past decade -- New Zealand's richest man.

Last year Hart topped the National Business Review's Rich List with a relatively modest $2.75 billion. Jennings made his first appearance on the list, at No 28, but information was scant. Lacking even an age for him (he's 47), NBR noted: "His wealth could be much higher than $200 million, but disclosure from Russian banks is notoriously poor."

Jennings did, however, rate 21st on Forbes magazine's Australasian Rich List, published earlier this year. Contributing editor Justin Doebele, who helped compile the list, says Jennings's overseas experience is typical of high-net-worth New Zealanders -- namely, he had to leave the country to get super-rich.

Of the top five New Zealanders on the Forbes list, only two are based in their home country -- Hart and Lynette Erceg, the widow of alcopop baron and Independent Liquor founder Michael Erceg. (The Dubai-based Chandler brothers, who recently split their $5.2 billion fortune between them, round out the list.)

Interviews with observers and experts in Russia and London, as well as with former colleagues in New Zealand business and academia, paint an extraordinary picture of Jennings's rise to the heights of global capital, but the man himself declined, through a Moscow PR representative, to talk to the Listener.

"He's not a person who would seek or want a public profile," says Bryce Wilkinson, an economist with Capital Economics who moved in the same circles as Jennings in the late 1980s. "He just gets on and does things. He's just an unassuming Kiwi, really."

Born in Waitara, Jennings went to school in Oakura and studied business and economics at Massey and Auckland universities before entering employment in 1984. He worked on deregulation and privatisation, first with Treasury and later with CS First Boston (see box overleaf).

Professor Vernon L Smith spent two months of 1991 working with the Wellington CS First Boston office, and later thanked Jennings in an academic article on New Zealand's electricity reform.

Now at George Mason University in Virginia, Smith -- who jointly won the Nobel Prize for economics in 2002 -- remembers Jennings as a "competent, entrepreneurial and energetic actor in the New Zealand privatisation movement".

After a short spell in CS First Boston's London office, in 1992 Jennings was sent -- along with colleague Boris Jordan -- to jointly head up a new Moscow office.

"They made a terrible mistake," Jennings told the Spectator of the decision to pair him with Jordan. "They put two of the biggest mavericks in the firm next to each other."

On Christmas Day, 1991, the Soviet flag was flown from the Kremlin for the last time and, once Boris Yeltsin took power, the Russian economy was flung wide open after 70 years of state control. Jordan and Jennings were engaged as consultants with Harvard University's Russia project, an initiative funded by the US Government and intended to modernise the Russian economy.

Jordan, an American whose grand-parents had fled Russia after the 1917 revolution, told PBS in a revealing interview in 2000 that he and Jennings provided the practical element of a vast privatisation programme.

"The problem lay in that they [the Harvard academics] were largely lawyers and theoreticians who did a fantastic job putting the framework together," said Jordan, "but to put that into practice, none of them had the experience. That's why they brought in people with investment banking backgrounds -- to show them how to sell the assets.

"My partner, Stephen Jennings, and I were heads of this process."

Jordan, who was then just 27 -- Jennings was 32 -- said the Russia project represented the opportunity of a lifetime for a young moneyman.

The privatisation programme called for the distribution of 144 million vouchers to Russian citizens, who could then use them to bid in auctions for state assets. Ideally, this would create a broad base of public ownership.

To some extent, both Jordan and Jennings saw the process as an ideological crusade. "There's nothing like market economics, which is the antithesis of central planning, to break down the communist system," Jordan said. "And that really drove us tremendously. And both my partner and I are real believers in that."

The first Soviet asset was the Bolshevik Biscuit Factory, an organisation nearly identical to a Polish firm Jennings had helped sell to Pepsi for $100 million in 1991. The pair had five weeks to complete the process, but Jennings couldn't speak a word of Russian and Moscow wasn't set up to handle western financiers.

Jordan: "There was no modern office space in the city, so we basically rented out an old hotel suite at the Metropol Hotel and paid the hotel to run extra phone cables into it. We went out and in on airplanes and brought in fax machines. We literally had to come in on a weekly basis with a suitcase of $25,000 or $50,000 or $100,000 in cash to just finance the whole operation and put it together."

Meanwhile, it became apparent that the Russian public weren't enamoured with the idea of stock ownership. "People on the street didn't believe it," Jordan said. "They felt that if the voucher could buy them two bottles of vodka, then that was better than something called equity."

Nonetheless, on December 8, 1992, just before the Soviet-era Congress of People's Deputies met to kill the programme, the first auction took place. With very little public interest the biscuit factory was initially valued at $860,000 -- a fraction of the [$80 million] price fetched by its Polish counterpart.

Spotting their chance, Jordan and Jennings switched tack and began acquiring vouchers on behalf of investors who could secure state assets on the cheap in the following wave of privatisations.

It was a never-to-be-repeated opportunity. As the great Russian writer Alexander Solzhenitsyn told the German magazine Der Spiegel last month, "In his haste to have private rather than state ownership as quickly as possible, Yeltsin started a mass, multi-billion-dollar fire sale of the national patrimony."

Evans says the Russian public agree with Solzhenitsyn's judgment on Yeltsin's privatisation programme: "Most people think it was daylight robbery, which it was."

(Harvard University's involvement has also come in for criticism. In 2005 the university paid $35 million to settle a lawsuit brought by the U.S. Government which alleged that two academics "used their positions and substantial influence over Russian officials at this pivotal time in Russian history to advance their own and their spouses' private financial interests".)

According to the New York Times, Jordan and Jennings helped CS First Boston secure 12 percent of the vouchers for their clients. And, thanks not least to their efforts, in 1994 the investment bank reported a profit of $87 million from their Russian operations.

That same year Jordan was reportedly paid a bonus of $5 million. (The amount paid to Jennings was not disclosed, but around the same time he bought property in New Zealand.)

Central planning was no more, but the envisioned nation of shareholders never emerged: the lions' share of Soviet assets ended up owned by just a few. Dubbed the "magnificent seven" by the Guardian, during the mid-1990s this handful of individuals controlled half of Russia's economy and became known as "oligarchs".

In 1995 Jennings and Jordan quit CS First Boston to found Renaissance Capital -- the company that would make Jennings (but not Jordan) fabulously rich, though not before almost breaking them.

Allied with one of the "magnificent seven", while working out of a one-time disco hall in a Moscow hotel, Renaissance quickly became the preferred conduit for western capital into newly capitalist Russia.

During this early period, says Jules Evans, "Renaissance's reputation suffered a bit" after their oligarch ally tried to unilaterally dilute the stake of minority investors in an oil firm. The Russian securities commission investigated and suspended the underhand manoeuvre.

Business in Russia during the period was brutal, says Evans: "It used to be very bare-knuckled, with contract killings and asset seizures."

Russia's stockmarket grew sixfold in the 18 months to August 1997; the Economist reported that one Russian investment bank made returns of 200 percent on equity. Another just admitted to "fantastic" earnings.

That year Renaissance reported profits of $130 million, and the following June threw a party that proved as notorious as it was lavish. The Wall Street Journal reported that Renaissance entertained hundreds at the 18th-century Kuskovo Palace in Moscow, hired models dressed in period costume and flew in the US water ski team to do stunts on the estate's lake.

This party turned out to be the high watermark of economic excess in mid-1990s Russia, as two weeks after the lakeside extravaganza the country's economy collapsed. In August the government defaulted on debt repayment; the sharemarket plunged 90 percent and, after being floated, the currency shed 70 percent of its value in a matter of weeks.

Banks closed down, CS First Boston lost $340 million in a matter of months, and Renaissance wasn't spared, either. The investment bank was left "basically worthless", with one debtor alone owing more than $900 million, Jennings told the Spectator. He averted bankruptcy only by halving his workforce.

If there was a silver lining to this dark economic cloud, it was that the crisis wrecked the competition and gave Jennings an opportunity to clean house and take charge. He bought out his co-founders while the firm was at a low ebb, severed the alliance with the oligarch and took complete control.

Slowly but surely, he pulled Renaissance back from the brink and into the black. In the second half of 1999, according to the Moscow Times, the bank turned a profit -- albeit one that was barely one percent of its pre-crash peak.

While Jennings rebuilt, Russia's political scene changed dramatically. With the election of Vladimir Putin in 2000, oligarchs who had once been untouchable found themselves pariahs. The one-time head of oil firm Yukos is still serving time in Siberia for fraud and tax evasion. Evans says Jennings stays clear of trouble.

"He keeps his head down, out of politics, employs lots of Russians and has some well-connected people on his staff." (At one point Renaissance had the former spokesperson for the KGB on their board.)

And the London Times reported earlier this year that Jennings had declined to attend a London conference on Russian business after a diplomatic spat between the Kremlin and Downing St. (Russia wants to extradite asylum-seeker Boris Berezovsky, after the former oligarch told the Guardian he was plotting the violent overthrow of Putin.)

In June, when Renaissance hosted its annual investor conference, Jennings used his speech to take a shot at international critics of Russia: "Not even rash statements by western leaders, like Tony Blair's swansong warning that foreign investors will turn away from Russia because of concerns over democratic principles, can dampen the enthusiasm coming from foreign and domestic investors alike." [RB - This year, Tony Blair is the keynote speaker at RenCap's annual investors conference, a turnabout that did not go unnoticed]

Since consolidating in the first part of the decade, Renaissance has branched out dramatically in the past few years. Its consumer banking division now has more than a million customers, while an asset management arm with offices in Geneva, Hong Kong and Singapore focuses on the needs of the super-rich and handles $6 billion. (The largest individual account is more than $130 million.)

And Jennings is not stopping there. "If Russia was a once-in-a-lifetime opportunity," he told the Bloomberg news service, "sub-Saharan Africa is a second once-in-a-lifetime opportunity."

He now spends more than two-thirds of his time in Africa, according to trade publication the Banker. Renaissance recently bought a 25 percent stake in Ecobank, a Togo-based lender operating in 17 African countries, and the bank plans to have 100 staff dedicated to the region by the end of 2007. Offices have already been opened in Nigeria and Kenya.

There are also plans to set up shop in Dubai in order to channel Middle Eastern oil money into the region.

"We have a super-conviction about Africa," Jennings told the Financial Times. "We are very optimistic the corner has turned economically. I fully expect the capital markets in sub-Saharan Africa to develop as rapidly as they have in Russia over the past 10 years."

Renaissance has concluded that even Zimbabwe -- a country with 10,000 percent inflation -- offers opportunities, but only if President Robert Mugabe is replaced in the near future.

"The potential market upside of any resolution to Zimbabwe's unsustainable political and related economic policy could be considerable," notes Renaissance research.

Expansion hasn't come cheap. Heavyweight international competitors like Lehman Brothers, Goldman Sachs and Morgan Stanley have beefed up their Russian presence and forced a bidding war for quality staff.

Jennings has kept well in the race, according to independent Russian business paper Vedomosti Daily, which says that on average Renaissance board members earn more than $2.6 million a year.

Even with staff and expansion costs, Evans reports in the Spectator that Renaissance profits now far exceed their pre-crash peak, hitting $395 million last year.

And the Kiwi banker has used his good fortune to make connections back home. In 2005 he purchased a share of a bach in Awaroa Inlet, Golden Bay. And a year earlier he donated $20,000 to the National Party, then led by fellow economist Don Brash.

But it hasn't all been smooth sailing in Russia. According to the BBC, in 1995, Renaissance chairman Oleg Kiselev was forced to resign and flee the country after fraud charges were filed against him in 2005. (The allegations are unrelated to Renaissance.)

It's still difficult for foreign companies to do business in Russia. The wild days of frontier capitalism in the country may be past their murderous peak, but three years ago Forbes Russia editor Paul Klebnikov was shot dead in a suspected contract killing. His successor, Maxim Kashulinsky, says that "corruption is still a big problem".

Kashulinsky sees Jennings at social functions. Talking from Moscow, he says he understands that Jennings and his wife Tina have reconciled. Jennings married the Canadian-born Oxford graduate Tina Podplatnik in 1996, when she was editor of the weekly newsletter Capital Markets Russia, and they have three children. She filed for divorce last June, according to Kommersant, and sought $200 million of her husband's fortune, but Kashulinsky says the case never got to court.

There has even been a recent return to parties, although not quite on the scale of previous years. In 2005 Renaissance hosted one at Moscow's Club First, with entertainment provided by Boney M, the German disco group known for their late-1970s hits "Rasputin" and "By the Rivers of Babylon", and New Zealand band Moana and the Tribe.

Jennings invited Moana and the Tribe back to Moscow earlier this year to facilitate a day-long team-building exercise that required Renaissance staff, among other things, to learn a haka.

But his profile in this country remains spectacularly low. Bryce Wilkinson, who consults for the Business Roundtable, cites the case of David Richwhite and Sir Michael Fay when explaining why Jennings might prefer his low profile.

"Look at the savaging Richwhite and Fay had just recently on that Tranzrail case -- with no real ability to defend themselves," says Wilkinson. "They were phenomenal risk-takers in their time and took on big challenges and gave them their best shot. This is a society which is absolutely savage on top-performing people."

Wilkinson says that Jennings's rise to the top of international finance deserves bouquets: "It's a phenomenal story of incredible achievements by an unassuming Kiwi," he says.

"And he's still going."