The Baring Vostok investment fund, set up by American investor Michael Calvey and partners, was one of the first to specialize in direct investment in Russia. It’s no exaggeration to say that without Baring Vostok, some of the most iconic Russian companies that dominate the domestic market today might not exist — at least not in their current form. Since the end of last year, the firm has been trying to exit the Russian market and is seeking approval from a government commission for a sale. But that approval has been delayed. The Bell has discovered that this could stem from the Kremlin’s particular interest in Baring Vostok’s stake in Ozon, the online retail platform often referred to as “Russia’s Amazon”.
To Russia with cash
Michael Calvey and his partners set up Baring Vostok in the mid-1990s while working at the European Bank for Reconstruction and Development. A pioneer in international investment in Russia, the fund attracted nearly $4 billion and was one of the first major backers of several leading Russian companies — from Yandex (“Russia’s Google”) and Ozon to popular health food chain VkusVill, leading private bank Tinkoff and software leader 1C. The fund famously earned a 500-fold return on its investment in Yandex, helping Baring cement its position as the gold standard for private capital on the Russian market.
Baring Vostok is also known for having an excellent understanding of how to do business in Russia. “These guys know full well how everything works here. They got out of some difficult situations without losing assets and without any scandals. They have a really good understanding of the Russian authorities,” a leading investment banker told The Bell. In addition to professional management, he said Calvey and his partners have worked with various high-ranking individuals to protect their interests. These include representatives of the security services and even former cosmonaut Alexei Leonov, who helped with various negotiations.
In 2019, the firm became known far beyond Russia — and not for its investment track record. Calvey and other Baring Vostok executives were arrested amid a conflict with businessman Artem Avetisyan, a close friend of First Deputy PM Andrei Belousov. The American investor was accused of embezzling funds from Vostochny Bank, in which Baring had held a controlling stake. Baring lost the resulting court case, was stripped of its control over the bank and paid 2.5 billion rubles to Vostochny. After spending almost two years in detention — first jail and then house arrest — Calvey himself received a five-and-a-half year suspended sentence in 2021. “Compared to most cases, receiving a suspended sentence is already almost a victory. But on the other hand, it is simply outrageous to be convicted of a crime that never happened," Calvey said of the verdict.
Calvey had already left Russia before Moscow invaded Ukraine in 2022. By the end of the year it was clear that Baring, too, was trying to get out by selling its assets to its local executive team. Many leading foreign companies, such as British American Tobacco, have done the same.
Before selling their assets, foreign companies need the approval of a specially created Russian government commission. Some companies have had no problems, but others have encountered significant turbulence. Danish company Carlsberg, for example, had its assets nationalized a few weeks after saying it had found a buyer for its Russian business.
Baring Vostok’s exit is a complicated case, with 12 Russian portfolio companies involved in its planned “divorce.” With so many different assets, reaching an agreement was never going to be easy. But, according to three sources familiar with the process, the main issue holding up the sale is Baring’s stake in Ozon, Russia’s second largest online marketplace. Baring Vostok controls 27.7% of Ozon, sometimes dubbed “Russia’s Amazon” — a stake worth about $1.6 billion at current exchange rates.
The Presidential Administration, which now decides which foreign businesses can and cannot sell their assets, will not give Baring Vostok permission to sell to its chosen buyers precisely because of that Ozon stake, one source told The Bell. Another added that the Kremlin does not want Baring Vostok’s Russian managers to inherit such a large stake in such a valuable asset. They believe the administration sees more suitable candidates to take over Baring’s share of the online retailer, including investment vehicles linked to Ivan Tavrin, the former CEO of top Russian telecoms group MegaFon. Tavrin is actively involved in some deals related to the exit of other online companies due to the war and is one of the candidates that could buy into Yandex as part of its upcoming restructuring.
A source close to Tavrin denied that he had any interest in Ozon. Representatives of Baring Vostok declined to comment. Kremlin press secretary Dmitry Peskov did not respond to a request to comment.
The close interest in Ozon is understandable — it’s the biggest asset in Baring Vostok’s Russian portfolio and one of the largest marketplaces in Russia. Some 42.5 million people (29% of the population) actively use the site — a number that has grown by about 30% in each of the last three quarters. Ozon and market leader Wildberries have a combined market share of up to 53%. Despite the war and the mass exodus of foreign brands, Ozon has continued to grow steadily, with revenues up 67% to $3.3 billion in 2022. In the third quarter of 2023, the last set of publicly released results, the company reported revenues of $1.2 billion, up 77% on the same period last year.
Why the world should care:
Baring Vostok was one of the largest and most important investors in modern Russia, playing a key role in establishing many leading Russian companies. But its history counts for nothing now that the fund has decided to leave and is forced to deal with a government commission with the power to delay sales or block them entirely. As the Carlsberg saga shows, nobody is safe from nationalization while a decision is still pending.