Russian Oil Billionaires' Next Big Investment - American Health Careby and
Fridman’s LetterOne to invest $3 billion in health care
‘We cannot hold all our assets in Russia. It’s too risky.’
Mikhail Fridman cashed out of his Russian oil venture near the top of the market and moved to London to build an empire in calmer climes. Then Brexit struck, reinforcing his determination to keep heading west.
With Britain’s decision to leave the European Union and sanctions over Ukraine muddying the investment waters from Moscow to Glasgow, Fridman and his three fellow Alfa Group billionaires are looking across the Atlantic and see a clear stream of profit in ever-higher spending on health care. With two Washington insiders in tow to help navigate the terrain, the Russians are preparing to invest as much as $3 billion in the industry over three years, starting in the U.S., where it accounts for almost a fifth of the economy.
“There are signals of a major tectonic shift in economic development happening before our eyes,” Fridman said in an interview in London.
Flush with almost $14 billion from the sale in 2013 of TNK-BP to state-owned Rosneft PJSC, Fridman and his partners created Luxembourg-based LetterOne to acquire western projects to balance their holdings back home. After buying North Sea energy assets, U.K. student housing and a slice of Uber Technologies Inc., they have about half left to deploy.
The skills and tactics that allowed Fridman to flourish in post-Soviet Russia won’t necessarily translate into success in the U.S., particularly with relations at a post-Cold War low. So he and his partners, who are both decried and admired for their mastery of what is known as administrative resources -- the aggressive use of connections, courts and cops to achieve commercial aims -- have brought on board people with ties to both major candidates for president.
Advisers to LetterOne’s board include Thomas McLarty III, former President Bill Clinton’s first chief of staff, and Richard Burt, George H. W. Bush’s lead negotiator for the Strategic Arms Reduction Treaty with the Soviet Union. Burt, a partner at McLarty’s Washington-based consultancy McLarty Associates and a former ambassador to Germany, has also advised presumptive Republican presidential candidate Donald Trump on foreign policy, according to Reuters.
“Our Russian background is a disadvantage as businessmen at the moment, given the political tensions, but this sentiment is changing,” said Fridman, 52, whose eldest daughter just graduated from Yale University in New Haven, Connecticut, where his second eldest is an undergraduate.
LetterOne’s new L1 Health unit, which will be based in the U.S., is already working to identify investment targets, aided by an advisory board that includes Diageo Plc Chairman Franz Humer, a former chairman of the world’s biggest maker of cancer drugs, Roche Holding AG.
“Innovations in technology, biology, and genomics are changing the way we think about health-care treatments,” Fridman said. “This enables us to look at health care in new and unique ways.”
Fridman started what would become Alfa Group with two college classmates, German Khan and Alexey Kuzmichev, in the dying days of communism, scalping theater tickets and washing windows. They named their company Alfa in honor of a physics professor, Mikhail Alfimov, who found them their first office, an unused room at the Institute of Chemical Physics, where he taught.
By the mid-1990s, they’d become pioneers in the post-communist version of corporate raiding, targeting newly privatized entities in the metals and energy industries. A fourth partner and key political fixer, Petr Aven, joined the trio in 1994 and has overseen their lender, Alfa Bank, ever since. Aven was the minister in Moscow for foreign economic relations in 1991 and 1992, when Vladimir Putin held the same post in the St. Petersburg city government.
After more than two decades of working together, the four men, who insist they’ve always acted within the law, have a collective fortune of $33.5 billion, according to the Bloomberg Billionaires Index.
In addition to LetterOne and Alfa Bank, they control almost half of VimpelCom, an Amsterdam-based wireless carrier with customers in a dozen countries, Russia’s second-largest supermarket chain and a major insurance company. Fridman, Khan, 54, Kuzmichev, 53, and Aven, 61, are worth $12.7 billion, $8.8 billion, $6.6 billion and $5.4 billion, respectively.
“The art of business is universal and a very rational thing: revenue minus operating expenses,” Fridman said.
Fridman said he and his partners have no interest in jumping back into Russian oil, which is tightly controlled by the government, saying “there are no valuable assets” in the industry that produced their most spectacular windfall. The expansion, he said, isn’t about “withdrawing money” from Russia, but about asset diversification in terms of both location and allocation.
“We cannot hold all our assets in Russia,” Fridman said. “It’s too risky.”
But that doesn’t mean the partners won’t continue to invest in their Russian companies, which account for about half of their wealth.
Besides, investing in real projects, as opposed to just parking money with a hedge fund and waiting “silently” for a return, is an endeavor that’s part war and part sport and team Alfa still enjoys both, he said.
“Me and my partners are not old -- we have a lot of energy and are eager to work,” Fridman said. “We want to become decision-making investors.”