Who is Alexander Fridman ?
Before January, nobody had heard of Alexander Fridman. This
should come as no surprise, as 19-year-old men searching for their place in the
world rarely pique the public’s interest. But, then, a short story published by
Bloomberg turned Fridman into an international sensation. This is because
Fridman is not your average young man but the son of Mikhail Fridman, one of
Russia’s most prominent and well-known oligarchs, whose personal fortune is
estimated at over $14 billion, according to Forbes.
Fridman was described in the story as the exact opposite of
what you would expect from the son of one of Russia’s richest men: he was
living in the outskirts of Moscow, in a rented apartment that cost $500 a
month, and using public transportation to move around. “I eat, live, sleep,
dress in everything that I earned myself,” Fridman told Bloomberg at the time.
“This wasn't a case of fake news,” Fridman told in a recent
phone interview while he, like the rest of us, remains at home due to
self-isolation guidelines imposed due to the coronavirus (Covid-19) outbreak.
Since the story came out, Fridman said, he has seen a bit of a boost in his
business and decided to move to a slightly pricier apartment that is closer to
his office at the Moscow International Business Center, also known as Moscow
City. “I still take the underground metro everywhere,” he said. “I don’t even
have a driver’s license or my own car.”
You may ask yourself what a billionaire's son is doing
taking the metro to work but Fridman is not living the regular life of a rich
kid. For one, he is not destined to inherit almost any of his father’s fortune
as the latter already proclaimed he will be donating all of it to charity upon
his death. In 2016, speaking in front of an audience at the Forbes club,
Fridman Senior said giving a young person large amounts of money risks ruining
their life and that he wants his children to follow in his footsteps and
“create something of their own.”
"I was only 15
at the time, but it was not news to me,” Fridman said, explaining that his
father always told him he would have to work for himself. “I have people around
me that still make fun of me or feel sorry for me for not getting the money,
but from an early age I knew some people would not like me, either because they
were jealous of my money or my mind or because they were antisemitic,” he said.
At this point, we should take a minute to examine the
history of Fridman’s father Mikhail. Fridman’s 56-year-old father is not just
any billionaire, he is one of the seven original magnates who made their
unimaginable fortunes during the crumbling of the Soviet Union. In other words,
he is one of Russia’s original oligarchs.
In 1990, when Fridman Senior was in his twenties, he
co-founded Alfa-Bank JSC, one of Russia’s first private commercial banks. In
1996, he officially became an oligarch when he was one of the seven businessmen
that assured the reelection of then-Russian president Boris Yeltsin with a
collective donation of $200 million to his campaign. In return, each of the
newly crowned oligarchs got to acquire controlling stakes in Russia’s biggest
strategic companies, thus establishing the infamous and unbreakable tie between
Russia’s regime and its most wealthy individuals.
Fridman Senior acquired the controlling stake in state-owned
oil company TNK for several hundreds of millions of dollars together with
businessmen Len Blavatnik and Viktor Vekselberg. In 2013, the three sold the company
back to Russian state-owned energy group Rosneft Oil Co. for $56 billion,
raking in about $5 billion each.
Mikhail’s Alfa Bank is now a part of the Alfa Group
Consortium, Russia's largest privately owned investment group.
Fridman Senior, now an Israeli citizen, is very much the
last of the original oligarch group to still hold much of the fortune he
acquired in the 1990s. He managed to retain his spot as one of Russia’s 10
richest people for many years, while the others fell from grace in various
ways: Boris Berezovsky, for example, died in London in 2013 under suspicious
circumstances; Mikhail Khodorkovsky was jailed in Russia for 11 years; and
Vladimir Gusinsky, fleeing criminal charges, had to leave his homeland,
immigrating to Israel at one point.
In recent years, Mikhail Fridman has been residing in a
mansion at the edge of London’s Hampstead Heath, which he acquired in 2016 for
GBP 65 million (approximately $86 million, at the time), making him London’s
wealthiest resident. This fact could perhaps provide a better perspective on
Fridman Junior’s claims of financial independence and forfeiture of wealth.
Fridman may not stand to inherit much and indeed needs to work for a living but
his familial ties remain a huge advantage for him.
As a child, Fridman only saw his father once or twice a
week, because “he was working all of the time.” Fridman said he was once angry
at his father for not being there but now believes the quality of the time they
spent together meant more than the quantity. “In the mornings, before I left
for school, we would talk about his business, about other companies, and about
the news, for an hour or so,” he said. “In my work, I now encounter situations
my father told me about as a kid and I appreciate it,” he said.
One of the few questions Fridman is reluctant to answer is
the number of siblings he has. This is a question for his father, he said.
According to most reports, in addition to Alexander, Fridman Senior has three
daughters, two from a previous marriage, but some reports claim he has
additional offspring.
Mikhail's efforts to teach his son the value of a dollar
from an early age may seem almost absurd. While his schoolmates in Moscow were
driven to school in Mercedeses and Hummers, accompanied by bodyguards and
loaded with cash, Alexander Fridman walked to school alone with a sandwich in
his backpack. When he was 12 and wanted to take a girl from school out on a
date, he was sent to earn the required cash. His father gave him two options:
washing the family car or memorizing a poem. Each task would earn the young
Fridman $2, but since the girl he was interested in was herself an oligarch’s
daughter, to pay for the restaurant she wanted to go to, Fridman would have had
to “wash all the cars in Alfa Bank’s parking lot.”
On another occasion, Fridman acted more like a typical rich
kid when he lost an iPhone to a classmate on a bet. His father agreed to pay
for the device he owed so he could keep his word, but Fridman had to memorize
and recite 70 classical poems to pay it off.
With time, Fridman developed a better eye for business and
realized going to a prestigious rich-kid school spelled opportunity. “As early
as the third grade when I got cookies and chocolate in my lunch box, I would
sell them to other kids, especially those whose parents were strict about a
healthy diet and would not let them have sweets,” he said. Later, he started
selling overpriced snacks and alcoholic beverages to older students. “These
kids don’t know the real price of things, for them, it’s just a few more pieces
of paper so I could charge them twice or three times the regular retail price,”
he explained.
What Fridman refers to here as “just a few more pieces of
paper” is, in fact, equivalent to half the average monthly wage in Russia.
According to Fridman, he used to get the alcoholic beverages from his mother’s
personal driver and would then store them in lockers at the school’s swimming
pool and sell the codes that unlocked the goods.
Speaking of business training, another skill Fridman learned
at a young age was how to launder the money he made, as he could hardly tell
his parents where it came from. “I bought some PlayStation games but most of
the money I just buried in the yard,” he said.
Fridman said he always knew he wanted to be a businessman
but his father wanted him to be an intellectual. Fridman is aware of the fact
that an opportunity like his father got when the Soviet Union fell apart is
unlikely to fall in his lap but believes “a fortune can be made at any time.”
According to Fridman, money is a sign of success but he does not plan to spend
it on expensive toys or property. “I want to be free of these worries.”
At 13, Fridman was sent to Sevenoaks School, a private
boarding school in Kent, which charges about GBP 40,000 (approximately $50,000)
in annual tuition. He studied alongside the sons of fellow oligarchs, British
lords, and one Bollywood star. Fridman spoke of his time at the school as
character-building and said the experiences there taught him to toughen up and
deal with being picked on. “I never imagined I would get in fights in the U.K.
for being Jewish,” he said. “As a boy, I used to weigh 120 kilograms on top of
being Jewish so I was pretty used to being picked on,” he said. “My father
always told me I could lose the weight, but I will always be seen as a Jew.”
When he was living in the U.K., Fridman still had to make
some money on the side for anything more than the basic stipend his father gave
him. His friends, the son and daughter of Russian billionaire Oleg Tinkov, used
to lend him money for Uber rides and cinema tickets.
That is how Fridman’s current business activity was
born—from a mix of independent thinking and daddy’s connections. “It is hard to
separate between his connections and mine,” he said. “He has his own
connections at work but the rich kids I met at the school he sent me to—are
they his connections or my own?” According to Fridman, these connections only
serve as a good starting off point. “They got my foot through the door and I am
now in the lobby, but I want to climb to the top of the tower,” he said.
To get there, Fridman started his first business at 18,
organizing and producing glamorous parties for the rich and powerful, namely
the offspring of oligarchs he knew from school. Fridman got the best bands and
DJs for these parties but said he quickly learned this type of business can be
questionable and has a lot of dirty money that made him feel uncomfortable.
With the money he made producing parties, Fridman moved on
to the next big thing: hookahs or as they are known in Russia: steam cocktails.
With this branding, Fridman was able to offer his product at Moscow’s top
luxury restaurants, charging an unbelievable fee of $200 for smoking it. Of
course, it did not hurt that most of these restaurants were owned by people in
Fridman’s social circle.
At this point, Fridman realized he could use his connections
to form a more serious business and so he founded SF Development. SF is short
for Six Figures, he said. “We started out as six partners but this has more to
do with our goal, which is to make $1 million in our first year,” he said. SF
offers an accelerator program for small companies that is based on a
partnership with the elder Fridman’s retail business. “We take companies with
interesting products or back-office solutions and get them into retail,” Fridman
said.
“We found a company that developed a good solution for
customer club management and we put it in touch with some retail chains that
would normally not work with such a tiny company,” Fridman said. According to
Fridman, he uses his father’s connections to give companies a leg up. “The main
concept is that companies come to us with innovative products and our experts
teach them what they need to know about marketing, business, and logistics and
then connect them with large chains,” he said.
According to Fridman, there is no nepotism here. “My last
name opens doors for me and I have contacts inside my father’s chains, but they
still would not take any product from me if it doesn’t make them money,” he
said.
The first products SF put on the shelves of Russian stores
and which already bring in several hundreds of thousands of dollars in annual
revenue are a chewing gum brand from Turkey called Love Is and a South Korean
soft drink called Morning Care that supposedly reduces the ill effects of a
hangover.
Fridman Senior’s retail business X5 Retail Group NV is the
largest retailer in Russia with a chain of 15,000 neighborhood supermarkets,
850 hypermarket stores, and 90 Walmart-like mega stores. In 2019, its sales
amounted to $23 billion and it is traded on the London Stock Exchange at a
market capitalization of about $8 billion. As it is responsible for 12% of
Russia’s food industry, any chewing gum that reaches X5’s shelves is up for a
significant boost.
In Russia, everything is new money, and people are flaunting
it and wasting it, unlike in the U.K. where they have traditions of wealth
being passed on throughout the generations, Fridman said. Referring to the
problematic reputation of Russia’s billionaires, with many suspected of illegal
activity as the country stands high on corruption rankings, Fridman said what
is required is a complete political and legal transformation. “As long as
people cannot become rich through honest work, Russian businesses are going to
be treated with suspicion,” he said. “I can do everything legally and pay
whatever taxes I am required to, but it will take many more years for Russia to
gain this trust,” he added.
In Russia, as Fridman puts it well, everything is political,
even Covid-19, which has had an ill effect on his new business over the past
two months. Russia tried, for a long time, to deny there has been an outbreak
in the country, but at some point, the number of dead could not be written off
as a result of seasonal pneumonia. Now, when most of the world has already
succeeded in flattening the curve, Russia is still in the outbreak’s peak and
was, as of early May, seventh in the world in terms of the number of confirmed
patients, amounting to some 220,000, including Prime Minister Mikhail
Mishustin.
Even when President Vladimir Putin decided to look reality
in the eye and enforce lockdown policies, he refused to call them such,
announcing a nationwide month-long “holiday” in which employers are expected to
pay the workers’ full wages. However, many businesses reportedly continue to
operate in secret for fear of financial collapse.
Putin has good cause to tread lightly, after, in mid-April,
he conceded in the Russia-Saudi Arabia oil price war. Putin initiated this war
hoping to hurt the American oil industry, but it ended up causing the ruble to
drop. As 40% of Russia’s state budget comes from oil royalties, this crisis is
expected to shrink Russia’s economy by 10% this year and 14% in 2021.
Putin also has a complicated political campaign ahead of
him, also of his own making. On April 22, a referendum was scheduled to
determine whether Putin can run for two additional terms as president,
potentially retiring no earlier than 2036, which would require an amendment to
the constitution. The vote on the referendum was postponed due to Covid-19 and,
in the meantime, Putin’s popularity has sunk and he is looking at the very real
possibility of having to retire in 2024. Now, he is attempting to distance
himself as much as possible from the crisis, spending the lockdown in his
summer home and hoping to emerge from the crisis with a strategy that can keep
him at the helm.
Those hurt the most by the crisis are naturally Russia’s
citizens. “The state is not effectively handling the coronavirus crisis,”
Fridman said. “We are nearing the U.S. in terms of the number of patients but
they have a much better healthcare system, he said, adding that Moscow’s
hospitals are overcrowded and care in more distant areas is subpar.
Another issue in Russia is a lack of credible information.
The number of reported coronavirus-related deaths is abnormally low. While the
number of infected is similar to that of Germany, the number of reported deaths
in Russia, around 2,000, is about five times lower than in the country that has
one of the best healthcare systems in the world.
Fridman, like many others, is skeptical of the statistics
coming from the regime. “There are significant political consequences to having
many deaths and the numbers released are questionable,” Fridman said. He also
believes politics is what is keeping Russia from declaring a state of national
emergency. Should a state of emergency be declared, he said, Russia would need
to spend money from its $120 billion National Wealth Fund and the government
does not want to go there, especially considering the low oil prices, Fridman
explained.
Fridman is well aware of the negative impact the oil wars
will have on his business. With the ruble down, consumer spending is also
likely to drop meaning products pushed by SF will find less of a clientele, he
said. “It is becoming evident that the buying power of Russian consumers will
be hurt by both the high unemployment rate due to coronavirus,” Fridman said, “and
the extremely low government assistance budget, which is currently just 0.3% of
the country’s gross domestic product.”
Fridman’s criticism of the regime may sound subtle but it is
rare in Russia, especially coming from a member of a prominent oligarch’s
family. When it comes to Putin, Fridman turns hesitant and his replies become
less fluent, as he knows they could have severe implications not only on him
but on his father as well.
It is no coincidence that Fridman Senior is one of the few oligarchs
to stay at the top for over two decades. He is considered a shrewd and tough
businessman and the bank he controls is one of the few in Russia that doesn’t
dabble in debt restructuring processes. But, when it comes to public
statements, Mikhail Fridman is extremely careful to walk a thin line. While in
Russia he is seen as associated with Putin, he somehow managed not to be
included among the Russian businessmen sanctioned by the U.S. in 2018,
following reports of Russian intervention in the U.S. 2016 election. Two years
ago, he was even invited to Washington D.C. to appear before international
affairs think-tank the Atlantic Council and discuss the Russian economy in
light of the new sanctions.
When the pandemic first broke in Russia, Fridman Senior
addressed the country’s Jewish community with a reassuring message, claiming
the crisis will be over in several months and necessary drugs and vaccines will
be available within a year. Alfa Group also announced it will be donating 1
billion rubles (approximately $13 million) to fight off the virus. It feels
like more than a coincidence that Mikhail Fridman’s optimistic message appears
to be derived from Putin’s official party line.
Over the past few years, since he paid his debt to Putin by
selling TNK back to the state, Fridman Senior is doing his best to distance
himself from the Russian business world. In 2013 he founded LetterOne Holdings
SA, a holding company incorporated in Luxembourg with offices in London and New
York, that operates independently of the Alfa Group, which Fridman Senior
reportedly attempted to sell in the past. Fridman Senior’s new interests have a
more modern whiff and are focused mostly on tech, healthcare, and retail. Old
habits, however, die hard and LetterOne’s most significant asset is German gas
and oil company Wintershall Dea GmbH.
The Fridmans, both senior and junior, also have a connection
to Israel where they have relatives. “I like the people in Israel and I feel
like I have a lot in common with them in the way I think,” Fridman Junior said.
“I also like the way of doing business in Israel but appreciate that since I
haven’t lived there, I may not be aware of the negatives,” he added. “I haven’t
tried to do business in Israel but that may be because I am still very young.”
Comments
Post a Comment