October 19, 2018

Ruben Vardanyan: the Russian- ​Armenian businessman focusing on giving wealth away

Although he holds a Russian passport, his roots are in Armenia on the country’s southern flank and half of his activity is focused there.

Photo by FT
Financial Times - Ruben Vardanyan recalls earning a first monthly salary of just $100 shortly after the Soviet Union collapsed. Today, his focus is more on how to give away the vastly larger sums he has amassed and to share his advice with Russians still ill-prepared for wealth succession.

The Russian-Armenian businessman — who puts his wealth at “way less” than a Forbes estimate of $950m — says in recent years he has made $300m in donations and social impact investments. In parallel, he advises wealthy families that have emerged from the post-
Communist world as they move towards retirement.

As a student at Moscow University in 1990, Vardanyan began preparing for the transition from central planning to the market economy. Within months, he became one of the first employees of Troika Dialog, which aimed to be Russia’s pioneering investment bank in fast-moving and unpredictable “Wild East” times. “It was really a unique time,” says Vardanyan. “There were no regulations, no clients, nobody knew what the securities market was. My exam was a discussion with the deputy minister of finance.”

In 1992, when Goldman Sachs poached senior staff, he became Troika’s executive director at the age of only 23. The bank was active in the “voucher” privatisations of state enterprises and began wooing foreign investors as clients. He became an early participant in the country’s fledgling trading and deposit clearing systems. “It was the very, very beginning of everything.”

By 1996, he had acquired significant wealth through a stake in Troika shortly before it was bought by the Bank of Moscow. Then came the 1998 financial crisis and widespread default. “It was quite horrible. Eighty per cent of our business was from western clients and they all disappeared.”

His new owner tried to force him out in 2001, but he fought back and oversaw a leveraged buy-out. He witnessed another market crisis in 2008, sold a stake to Standard Bank before the whole company was acquired by Sberbank of Russia in 2012.

By then, he was already reflecting on how to give away and invest money with a social purpose. He was a founder of Skolkovo, the Russian business school based just outside Moscow that launched in 2006, where he encouraged discussions about how to give away as well as earn money.

“I wanted to build a new infrastructure for private ownership,” he says. “I realised it was critical for Russia, 100 years after the revolution, as we were facing the first generation that needed to transfer wealth to the next generation. They had no experience, culture or legal infrastructure.”

He created his own consultancy group, Philin, to offer managerial support for philanthropic structures for the rich and Phoenix Advisors to help them with wealth conservation and succession issues. His target market is families with $50m-$1bn in assets and says he has about 50 clients. “It’s the most difficult category: they are not big enough to have family offices and
not small enough for the private banks.”

He says few Russians are prepared for succession: a survey by Skolkovo suggested that 78 per cent of their children did not want to take over their parents’ businesses; and 92 per cent of the founders had not yet written wills.

“We believe philanthropy will move very fast in the next five years, but people have no culture to think about it,” he says. “This will be critical for Russia. Who can they learn from? Your company needs to be run, management can steal from you, the legal system is inefficient and sometimes corrupt. You can lose everything.

“My main advice is whatever you have decided, it will take time to explain to your family — five years or more,” he says. “If you don’t start now, it will be dangerous. It’s a long-term process that requires lots of effort and commitment. Do it as soon as you can.”

He and his wife agreed they would give away more than 80 per cent of their wealth, simply leaving their children some property and a relatively modest allowance. Although he holds a Russian passport, his roots are in Armenia on the country’s southern flank and half of his activity is focused there.

The genocide in the crumbling Ottoman Empire a century ago remains a heavy historical burden in Armenia, memorialised in a moving museum in the capital city Yerevan. His grandfather was reluctant to talk about his own experiences, but Vardanyan learned that he had been saved by a Turk and four American missionaries, moved westwards and placed in an orphanage school.

That inspired him to create the annual $1.1m Aurora prize in 2016 to recognise humanitarian courage, commitment and impact. (Vardanyan contributes the majority of support for the prize fund.) This year’s winner was Kyaw Hla Aung, a lawyer and activist on behalf of the Rohingya refugees in Myanmar. Last year’s laureate was Dr Tom Catena, who worked in Sudan’s Nuba mountains and in 2016 Marguerite Barankitse, who worked with orphans in Burundi.

“We all remember the people who were killed, but let’s look at those who have been saved,” says Vardanyan. “We should say thank you and give something back. That’s not about human rights, but human values.”

He has also donated significant amounts to education, notably through the creation of a school in the Dilijan district in northern Armenia. Yet much of his activity has been what he characterises as “commercial social impact” investments through “anchor projects” inspired by a series of principles. These include an approach that is “private-public” rather than “public-private” (or state-led) and a focus on projects that are ambitious and scalable.

He has encouraged investments from the country’s unusually large diaspora of 7m, who make up more than twice the number of Armenian inhabitants. “They have been good but bad for Armenia,” he says. “They give $2bn a year, which helps people to survive, but creates the wrong message. Becoming dependent on their external funding is like dependency on oil: if it’s free of charge, you don’t value it.”

His priorities came from “Armenia 2020”, a project he asked McKinsey to draw up 15 years ago. The consultancy highlighted the pivotal importance of education, healthcare, urban development, cultural heritage and national identity to growth.

“We’ll do another report in 15–20 years to see if it’s working,” he says. “But there are already some success stories.” He points, for example, to the funding of a cable car to Armenia’s remote Tatev monastery, which has helped sharply boost tourism and investment in the area.

He regards Armenia as a test bed for some 25 other small, “invisible” countries with similar characteristics, such as Moldova, Macedonia and Nicaragua. “No one cares about them, so it is difficult to invest. The costs of charitable giving are high. I thought, how can we convert this problem into a solution to create something common for other countries like it?”

But just as he stresses the need for long-term planning as wealth passes to a new generation of post-Soviet families, he also sees the need for patience. “That’s one of the biggest challenges. The expectation of a return is usually a maximum of 10 years in Armenia. Our vision is 25 years.”

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