(Bloomberg) — LetterOne Holdings, the investment firm co-founded by Russians including Mikhail Fridman and Petr Aven, bet big on hedge funds and private equity in recent years with the billionaires’ fortune from selling a giant energy company.
With the pair now sanctioned in the European Union and UK after Russia’s invasion of Ukraine, money managers from London to New York are under pressure to deal with billions of dollars collectively invested from LetterOne across their funds, even though the firm itself isn’t sanctioned and its billionaire founders have resigned.
An HSBC Holdings Plc fund that invests in multiple hedge funds had a $546.6 million allocation from LetterOne as of year-end 2020, and a similar vehicle from Blackstone Inc. had $435.1 million from the firm, according to the latest available registry filings.
Already, Pamplona Capital Management, which oversees almost $3 billion of LetterOne’s money, said last week it “has begun the process” of redeeming the firm’s partnership interests. Ed Eisler’s eponymous hedge fund, which was started with more than $100 million from LetterOne, on March 10 returned all capital affected by international sanctions.
“While Pamplona has received clear guidance that LetterOne is not a sanctioned entity, the ongoing crisis in Ukraine makes such relationships increasingly challenging,” the firm said last week in a statement.
A LetterOne spokesperson said in response to a question on the firm’s fund investments that it’s had “very few problems” other than the redemptions from Pamplona Capital and Eisler Capital.
“We have virtually no Russian capital across our entire firm and we are fully compliant with all global sanctions,” a Blackstone spokeswoman said in a statement. When asked if the Luxembourg-based LetterOne investment was redeemed, she said the firm can’t comment on individual investors.
“We would not confirm whether someone is or is not a client,” an HSBC representative said in a statement. “What we can confirm is that we are complying with and implementing the full range of sanctions imposed by governments around the world across our whole business.”
LetterOne also had more than $200 million in alternative asset manager Tyrus Capital at the end of 2020, though its position has since shrunk. Some $159 million in a co-investment fund was later liquidated, while the $54 million in its Special PE Opportunities Fund is much smaller now, according to a person with knowledge of the matter, who asked not to be identified because the details are private.
A spokesperson for Tony Chedraoui’s Tyrus Capital declined to comment.
Redeeming money quickly from a fund isn’t easy, even without taking into account sanctions.
As of year-end 2020, Blackstone’s fund allowed semi-annual redemptions with a 25% limit on withdrawals, while HSBC’s permitted them on a monthly basis with a 10% limit, the filings show. LetterOne first added to these funds in 2015, making them two of its longest-term outside holdings.
LetterOne, which invests across industries, had net assets of more than $22 billion — including $1.7 billion in hedge fund investments — at the end of 2020, according to its latest available annual report.
Fridman, 57, a native of Ukraine, amassed a fortune founding one of Russia’s largest private banks and collecting profits from energy ventures. In a recent interview with Bloomberg Businessweek, he said he has never been involved in politics and doesn’t understand why he has been sanctioned.
Along with Aven, 67, German Khan, 60, and other Russian associates, Fridman set up LetterOne to invest part of the $14 billion they collected from the sale of their stake in TNK-BP, a former state-owned company with interests in Siberian oilfields, to Rosneft Oil Co.
Fridman and Aven resigned from LetterOne earlier this month after they were sanctioned by the EU, a move they called “malicious” and said they plan to contest. They are worth $10 billion and $5.4 billion, respectively, according to the Bloomberg Billionaires Index.
The EU on Tuesday also sanctioned fellow LetterOne shareholders Khan and Alexei Kuzmichev, 59, who both resigned from the firm earlier this month. A representative for Kuzmichev didn’t immediately respond to requests for comment.
Khan, another Ukraine native, has described the destruction of cities where he spent his childhood as “heartbreaking.”
“My partners and I stand for the earliest end to war and will do all we can to help those affected — whether employees of our businesses in Ukraine, or victims of the violence,” Khan said in a March 7 statement.
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