Ruminations on Russia

As I might have mentioned Friday night turned in to a classic night of Moscovian bacchanalian excess, not helped by a lack of food.  Two themes recurred; Gin Martinis and risk.

The event was a Russian birthday party, expat participation was limited, which is why I spent from midnight to 03.00 arguing over what comes next with two Russian real estate and restaurant entrepreneurs - in Russian.  A female and her father - she comprehensively drunk me under the table.  Did I mention that I speak Russian fluidly?

By what comes next they mean who follows Putin, and what that means for their business.  Already they believe that their businesses are hamstrung by Chinovnik rent-seekers.  Father wants to stop investing in Russia and find opportunities in India and China because of his concerns.  Whilst there is a certain element of grass always being greener etc., he expressed more fluently than most that he was not going to risk cash in Russia until he knows what comes next.  I had assumed that we would start to see evidence of Russian risk aversion in 1Q 2007.  It would seem that it has already started.

Balls-of-steel and stomach-of-iron daughter who runs the business on a day-to-day basis was more comfortable with transition risk.

I think that the difference between their positions reflects a generational change; she had not left University when the Soviet Union collapsed, Dad is 30 years older.  He believes that everything can change - and indeed in his lifetime it has.  She has only been in meaningful business since the crisis - when life has been good.  Indeed it will probably be remembered as a/the golden period.

What does your Poster think?

• Putin will step down from the Presidency
• I don't think that we will see any silly constitutional games that will see him installed as Prime Minister
• He will continue to be a very active participant in Russian political life - Chairmanship of Gazprom?
• Which means that he is not, and will not be a lame duck President
• A chosen successor will take over - Medvedov better than Ivanov.  Anyone better than Sechin.  Kozak better than all of the above.
• There will be no meaningful attempt at a colorful revolution
• Freedom of speach will not be the winner but it will be democratic as it will reflect the will of the people and the Russian narod and your Poster's business will be better off as a result

I expect that the 5th Directorate thugs who are gorging themselves on the Greenspan-inspired global liquidity excess will try to engineer a pathetic quasi-legal attempt at reinstalling Putin.  Putin will resist and succeed.

What does that mean for the private equity business in Russia?

• Now is a better time to be a buyer than a seller - indeed we should see prices drop from their currently over-inflated levels
• Deal making will slow - watching which of the Oligarchs is doing deals may be a very good reflection, if indirectly, of the current state of internal fighting.
• Expect to see Russian millionaires and billionaires in the restaurants and shops of London, New York and Paris as they enjoy their wealth and wait for the Presidential elections to play out.

Finally if a Russian businesswoman declares that she likes vodka, declare yourself to be a tea-total, vegetarian tree-hugger and wake up on Saturday morning better off than your Poster.

[composed and posted with ecto]