An object of interest

Bob Seely, the conservative MP for the Isle of White, made these claims during a hearing on May 1:

…Christopher Chandler is a public figure, owing to the Legatum Institute…

According to the French security services… Mr Chandler is described as having been

“an object of interest to the DST since 2002 on suspicion of… working for the Russian intelligence services.”

Legatum, the think tank funded by Christopher Chandler, reportedly had high-level access to May’s cabinet (until recently) and used it to promote a “hard Brexit” agenda. Seely is connecting his dots like this: Russia > Christopher Chandler > Legatum > Gove & Johnson.

Sovereign, the investment fund the brothers Christopher and Robert Chandler managed, was one of a group of Russia- and Eastern Europe-focused funds investing in undervalued natural-resource stocks in the 1990s and early 2000s. There were bigger players in this game, such George Soros, Kenneth Dart, and Michael Dingman; there were well-respected funds, such as Harvard’s endowment and various Scandinavians; and there were fast-growing hedge funds, such as Firebird and, yes, Hermitage (starting as $25 million of Edmond Safra’s money managed by William Browder). Why single out Christopher Chandler as a potential Russian asset?

I would suggest Sovereign’s 1998-2003 Gazprom investment as a potential lead but before I start, I should make it clear that – if Sovereign’s media admissions are to be believed – it was far from its best investments in Russia.

It’s been reported that Sovereign earned about $800 million in 1997 after selling its shares in UES and Mosenergo. In February 1998, the fund invested almost $1 billion in Gazprom, buying a little less than 5% of its equity. These shares were sold in 2002-3 for a modest return of 12.5% – no more than $125 million. That’s quite modest compared with the $800 million gain posted in 1997. In retrospect, the timing of the sale wasn’t great (click on the blue-line chart): why didn’t the brothers wait until 2004 or, better yet, 2006?  But there’s something missing from the narrative.

Namely, how was it possible for a non-Russian investor to buy 5% of Gazprom in February 1998? At that time, the law limited foreign ownership to 9%, although this ceiling was raised to 20% in 1999. Up to 4.5% could be bought as ADRs, at a large premium to domestic shares; the difference could only be acquired by permission from the Russian government. Gazprom says that foreign investors only owned 4.48% of the stock at the end of 1998.

In all likelihood, Sovereign bought and/or held its 5% stake through Russian intermediaries, along the lines described in this Russian story from 2004 and this review from 2010. These types of ownership arrangements were called “grey schemes” back in that time, since they were neither patently illegal or impeccably legal. Being the second-largest foreign investor in Gazprom and holding the stock through a dubious scheme could have led to a special relationship between Sovereign and those in a position to help it out on the Russian side.

It doesn’t mean anything at all by itself, of course, but could have provided a justification for the DST to open an investigation. The Chandlers had moved to Monaco after selling their New Zealand business in 1986, and Monaco must have been home turf for the Direction de la Surveillance du Territoire.

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