'HSE is the number one supplier of manpower for my market'

HSE alumnus Pyotr Zhukov owns two investment funds which comes as a surprise from someone with a law degree. In Success Builder Pyotr talks about bankers having nervous breakdowns, who dictates the dollar exchange rate and why he doesn’t give money to hipsters.

How did your journey away from law towards economics begin?

I was still a student when I became a trader at the Foreign Trade Bank Vneshprombank. Initially I came to get some work experience, preparing documents for brokers’ deals. I realised quickly I wasn’t interested in the legal work and I asked if I could do an internship as a trader. I began to get the hang of it, actually I haven’t done brokering since then but even so, it was a useful experience.

After that I had an internship in Brunswick UBS and began to work in my area again, assisting the chief lawyer. Brunswick UBS was one of the first companies to become a fully-fledged western-style investment house in Russia. A month there confirmed my suspicions that the Law was not for me and that played a crucial role in determining my future.

Is that when you understood that law is not your thing?

Young people tend to romanticise professions - we dream about fighting for justice and thrilling the courts with our brilliant orations. But it’s only a tiny percentage of lawyers who become champions of justice. When I realised that, I went into finance.

I was lucky to find myself among some great people. I attached myself to the analytical department and made friends with the guys who write in-depth and interesting research. I didn’t have the fundamental knowledge to work there so they suggested I should have an interview at the business investors Brunswick Capital. They, as it happened, were looking for people and my friends literally took me by the hand and led me there, set me up as an intern, whipped me into shape and soon I was an analyst and had my first experience of investment projects.

But starting my career in private equity didn’t happen overnight. In 2003-2004 Brunswick Capital stopped financing new projects. There were guys working in IB (investment banking) working in the same building as us. I didn’t really understand what they were doing but when Brunswick Capital contracted, I went to UBS Investment Banking. That’s when my career really began. I spent the next eight years of my life working in that sphere.

How did you combine work and studying? It’s not easy at HSE.

At HSE it really is difficult to skip anything, it affects everything, your knowledge and your grades. Especially if you are at ICEF where you have to study seriously hard. But students need to know how to go out and party, snooze through lectures and learn about life altogether. I still got a first class degree, I was good at studying.

What is good about IB for a young specialist?

It’s commonly accepted that IB is full of unbelievably skilled, influential and professional people who deserve to be paid more than other consultants. This structure is only really a bank in name as all the big commercial banks have IB departments which are in fact consulting businesses.

Everyone who works in an international IB could in principle work abroad. You can apply for a transfer to a European or American office and there’s a good chance it will happen.

When you’re an analyst you are a unit for carrying out a standard selection of functions: a young professional to do the footwork for deals. You can be rotated endlessly - a German from the Frankfurt office can be put in your place while you are sent to Germany for 24 years [hours?]. I was even offered a job in Australia but my colleague said, the heat there is unreal, spiders and creepy crawlies, and it’s a helluva a long way from home. At first I wanted to go to New York, but no one in New York wanted my job in Moscow. Then I went to London.

In Russia, London and the USA did you have to work in the same way or are office metaphysics different across the pond?

Everything to do with business culture in the USA is a super-efficient machine. The competition is unbelievable at all levels, between colleagues in the same company everything is ideally constructed on the market, the workload and levels of psychological pressure, paranoia and perfectionism are close to breaking point. Work in the American banking industry is pushed to the very edge or beyond of human capacity which has it’s pluses. Everyone is trying to perfect their product. This drives people to behave aggressively in the workplace, and sacrifice any normal life outside the office for long periods which takes its toll on their psychological and mental health. But bankers don’t have time to get psychological help and some of them go quietly (or not so quietly) mad. Some of them become rather unpleasant people. It all depends on whether you have the strength of mind and will when you start out. It’s not exactly a benign atmosphere for a young person to start out in but it’s an amazing training opportunity, professionally speaking. If you can bear it and stick at it they will teach you everything quickly and systematically and raise the bar even higher for you.

Talking of banks, on HSE Day you said that financial policy is in fact global policy, is there a conspiracy theory on this?

I’m not a fan of that approach but there are conspiracies. People who aren’t very well informed think that global financial institutions force governments to lobby for their interests. It’s a very general thesis, to be specific, just from the size of these institutions they have influence - in Russian it’s Sberbank and VTB [The National Savings bank and the Bank of Foreign Trade]. They are not just banks. The government cannot afford for these institutions to feel bad because they are enormously socially important, millions of people have accounts with them. It’s obvious that relations with these banks influence approval ratings and the government’s financial position, a country’s economic liquidity and so on. Even in Russia banks are instruments of political and social power.

The scale of business of international banks is tens and hundreds of times the size of Sberbank. They really are global institutions and they have a huge number of mechanisms to influence local and global policy. The big American banks and some businesses are built on lobbying. For example, they openly and directly finance organisations which are intermediaries between banks and senators.

What have they or any of us got to do with it?

The directors have the right to vote on the way a government formulates financial policy and American government policy affects all of us, and directly because the exchange rate of the dollar depends on it. And following the exchange rate of the dollar recently, as we know, is our life. The heads of Goldman Sachs and J. P. Morgan try to solve these problems. They have numerous emissaries and appointees running various major organisations from the White House to the European Central Bank, the World Bank etc. That’s why they say, you are going to be in trouble and everything will collapse if you don’t change your tax policy and lower the interest rates. Of course there is no pulling on strings as the conspiracy theorists would have it, it’s just a fierce struggle which arises for socioeconomic reasons. The world banks are super powerful indeed and control hundreds of millions and even trillions of dollars and with that amount of money with our global system you can achieve almost anything you want.

At what point did you start thinking about having your own business?

Bank work is tiring. I rose to a certain level, moved to Moscow and from physically carrying out demanding tasks quickly I transferred to winning deals. It’s not so hard and a different kind of work with serious and important people.

Then in 2008 we had the crisis, which most people think began with the collapse of two major investment banks, Lehman Brothers and Bear Sterns. For my career the crisis meant a fundamental change of direction, towards the investment banking services market. Suddenly everyone regarded bankers as evil bloodsuckers, manipulators who invent fake financial tools to make the public lose money. Parasites on the body of the working people - all of which is absolutely true.

The Occupy Wall Street movement and international hatred towards the industry didn’t bode well for bankers. The state had to respond to the demands of the electorate and bankers commissions and salaries were reduced sharply. The way I saw it the big salaries were always justified by the incredibly intensive workload. When I understood that things weren’t going to be so rosy anymore, I began to seek out ways to get out and I went for the investment business.

You ‘ploughed’ the investment sector thoroughly during your work - what was it like to meet it from outside a big banking structure?

I thought that but even now I’m still learning. Four years have gone by and I’m still learning to keep myself afloat. There was a lot I didn’t understand when I started about the investors, about people, managing money. You think differently when you begin not just to do your job but to generate work for yourself.

Now you have two companies: Indigo Capital Partners and Endemic Capital. How are they different?

Funds differ as a rule according to the amount of money in them and the stages of development of the businesses in which they invest. Venture and seed funds are always for new businesses which cannot usually pay for themselves and don’t have their own resources to grow. Endemic Capital has those kinds of investment.

And then there are private equity funds - they invest in mature and established businesses and they invest much larger sums that venture funds. That’s what Indigo Capital is for.

Which of them brings in more money? I would guess that the seed fund is not so profitable.

I set it up out of a desire to help young entrepreneurs and to develop their business ideas. People outside the market often don’t see the difference between one investment and another - they think that if I’m in investment I have money for any project. You only have to say out loud that you have an investment business and you are inundated with a vast number of proposals and a heap of irrelevant trash. After I set up Indigo, that’s exactly what happened to me. I’ve often had to refuse money to hipsters with innumerable projects for mobile apps or bearded geeks building robots. But I’ve also met some very nice people and I started to feel sorry to turn them away, and thought, why not give them something? Lyosha Beltyukov and I started up Endemic Capital and began to give small amounts of money for developing early stage projects in Russia and abroad. It was a kind of mini fund.

What are your requirements from these young investment seekers?

We’re not interested in a blank page, you have to have a product or prototype for a business with a team and coherent service which is already selling. We evaluate the project, measure its market prospects, uniqueness as a business model and other investment parameters. We can do an express analysis in one skype call or meeting after we’ve considered the project presentation.

Do any of the guys you’ve been working with have interesting and practicable cases?

They’re rather different, some of them have developed really fast, others are just treading water. The idea was to be diagnosticians for them. The market and investment trends are such that at the moment technology or green energy projects, like wind turbines and solar batteries are having the most success, but tomorrow everything could turn back to mobiles and software. But we are watching non-technology based young businesses too. Recently we agreed to get involved in an interesting and highly unusual project - a network of football clubs for preschool children. It was a completely unoccupied niche.

What’s happening to the Russian investment market?

It is not in the point of conception but in the very early stages of life. It is a rather sickly baby with an unpredictable future. The sanctions don’t help its development, naturally, because the market for private investments depends often on economic liquidity and interaction with foreign companies and investors. These last have been forbidden to buy in Russia. But some people are finding ways around the ban and doing deals if only on a small scale.

The private equity industry is not developing nor is it taking on the right structure - we have only two large funds with American capital. A few dozen small and medium funds are in varying states of health. To compare, Germany has several thousand investment funds.

We have the Russian Fund of Direct Investments which is financed by the state but works on the general market. And the big state banks like VTB have investment departments.

The oligarch groups of so called family offices or investment departments of financial-industrial groups represent another kind of player on the direct investments market. For example there’ll be a very rich chap and an office which manages his money. This ‘office’ buys some businesses as well. Most of our oligarchs are typically suspicious by nature and hardly any of them entrust their money to investment funds. They are sure of their own expertise and investment experience although none of them will be able to participate fully as professionals in the private equity market because they don’t have enough time, their priorities are on a higher level and they don’t have any clear strategies.

In general, it’s an extremely complex market.

Your experience is impressive, have you thought of giving lectures and develop the theory side of things?

I am attracted to giving lectures, I like talking, like young, energetic people and I have something to offer. It’s really enjoyable talking to them. I gave a couple of lectures at Skolkovo, and at the Plekhanov University and I’m glad the HSE also asks me to events. I would like to do something on a regular basis at HSE, like give a course of lectures of corporate finance. At the moment I can’t tear myself away from work to do it but I will, sooner or later. Anyway, my link with HSE is very much alive because I take on new staff from there. The vice-president and analyst in my company is from ICEF and the Economics Faculty. My chief lawyer was in the same year as me at HSE. HSE is the number one supplier of manpower in my market. I’ve come to this conclusion after seven years experience of recruiting young employees in Russia. I’ve had to consider more than several hundred job applicants as a staffer at Credit Suisse and then at the fund.