Hermitage fund still invests in Russia

By Dane Hamilton

NEW YORK (Reuters) - Hermitage Capital Management, the $4 billion (2 billion pound) activist investment fund focused on Russia, has no plans to pull out of the country even after authorities raided its Moscow offices last month and carted away computers and files, its founder told Reuters.

The raid, which authorities said was part of criminal tax evasion investigation, came nearly two years after its U.S.-born founder William Browder was declared a threat to national security and abruptly denied a visa to Russia, where Hermitage had been operating since 1996.

Browder has yet to return to Russia but denied market speculation that he's given up there, even though he has raised a new $625 million fund to invest elsewhere. After the raid, the firm brought its Moscow investment staff to London and they continue to have access to Russia, he said on Friday.

Browder, 43, made a name for himself for taking large stakes in Russian companies and agitating for management and strategy changes, a then-novel strategy in the emerging capitalist nation. The strategy clearly made Browder a target of powerful business interests with ties to the government.

Browder's 1997 campaign at energy giant Gazprom OAO (GAZP.MM), for instance, was instrumental in forcing management changes that sent its stock rocketing up 35 times, giving Hermitage a return of 228 percent that year, the best return of any similar fund in the world that year.

Browder's strategy revolved about a key question emblematic of Russia's rocky transition to capitalism that decade: the firm sought to determine how much of the former state-owned company's assets were being siphoned off by former management and cronies.

The market assumed 99 percent, Browder said. Hermitage's gumshoe investigation found it much lower: less than 10 percent, evidence that the market vastly undervalued Gazprom, prompting Hermitage to buy a large stake.

The campaign put Browder on the map and prompted him to take on nearly a dozen other companies, including Transneft (TRNF_p.RTS), Sberbank (SBER.RTS) and others over eight years. Competitors say it is obvious that Browder alienated powerful people with ties to the government.