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March 26, 2013 8:08 pm
The Hermitage Fund, an HSBC-backed vehicle that invested in Russia and became embroiled in a diplomatic war with the Kremlin over the death of one if its lawyers, is closing its doors.
Once the largest portfolio investor in Russia with $4bn of assets under management at its height in 2005, the fund has been hit by redemptions by shareholders and the legal entanglements of Bill Browder, its chief adviser.
The fund is now reckoned by insiders to have at most $60m in assets.
“The Hermitage Fund was at a size that no longer made it a viable entity” Mr Browder told the Financial Times on Tuesday.
Mr Browder said that Hermitage Capital Management’s other activities focused on different emerging markets would be unaffected by the closure of its Russia fund.
Since August, HSBC Holdings, which is both manager and trustee of the fund, has been locked in a dispute with investors. The investors want to withdraw their money but say that they cannot, because they say that HSBC will not tell them how much a share is worth.
Tim Enneking, chairman of Altima Asset Management in Moscow, said that HSBC ceased issuing valuations of the fund August, after which most investors tried to withdraw their money. He said that HSBC had not allowed them to do so.
HSBC declined to comment on Tuesday.
However, in a January letter from HSBC to Mr Enneking, seen by the FT, HSBC said that was it trying to ascertain whether costs associated with a lawsuit against Mr Browder were to be borne by the fund.
“Until this determination is made it is not appropriate to process any fund subscriptions and redemptions at the 17 Aug 2012 net asset value, and the fund must therefore remain suspended,” the letter said.
Mr Enneking accused HSBC of “holding us all hostage for no good reason”, adding that he did not see why the fund should expect to incur any costs associated with Mr Browder’s legal problems.
Mr Browder is being sued for libel in the UK by a Russian policeman. He is also being prosecuted in Moscow for tax evasion in a strange legal process in which he is a co-defendant alongside his former lawyer, Sergei Magnitsky, who died in a Russian prison in 2009, but who is still being tried in posthumous court proceedings that began last Friday.
Mr Browder says that his legal problems are the result of a Kremlin attempt to pressure him after he single-handedly campaigned to pass the Magnitsky Law in the US, signed in December of last year by President Barack Obama. The law imposes sanctions on a list of Russians suspected of complicity in Mr Magnitsky’s death.
The Hermitage Fund was founded by Mr Browder in 1996, and attracted much attention, as well as investors, because of his activism. He was expelled from Russia in 2005 owing to his activism, he said, and soon after investors began to withdraw their money from the fund.
Mr Browder said that the campaign on behalf of Magnitsky will continue and he has recently begun lobbying to convince the EU to adopt similar legislation to the Magnitsky law. “The campaign for Magnitsky will continue with or without the Hermitage Fund” he said.
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