The owner of Balchug Capital, David Amaryan, who had been trading securities on world stock markets for many years, was an excellent buyer for European sellers. According to his acquaintance, Amaryan said in those days: “I can pass a KYC anywhere in the world.” It meant that he had no connections with the Russian authorities and state capital. Negotiations with Finnish companies went like clockwork. Already on January 31, 2023, according to SPARK-Interfax, the EV-Invest company, through which the Finns owned the business center, passed into the hands of Balchug Capital.
But stock trader Amaryan did not stop there. Less than three months had passed since he bought a stake in one of the largest shopping and entertainment centers in Moscow, Metropolis, from the fund of the American company Hines. “I hope this is not our last,” Amaryan commented on this turn in his career as an experienced stock exchange player.
The assets of Balchug Capital were not ordinary: their total rental income exceeds, according to the Hedge Fund Journal, $50 million a year. Director, head of transaction practice, M&A and business development in the field of real estate at Trust Technologies (formerly PwC in Russia), Sayan Tsyrenov, considers both transactions large and notable. “The purchase of the Pulkovo Sky business center certainly confirms the institutional quality of St. Petersburg assets, as well as the attractiveness of the office market of the second city in Russia,” he says. “And the acquisition of the first phase of the Metropolis shopping center is an even more notable event, since this asset has always attracted the attention of major international investors due to the combination of a successful location, a well-thought-out concept and the bankability of the asset, that is, the ability to attract debt capital on favorable terms.”
The investment portfolio managed by Balchug Capital is, according to its representative, about $2 billion. The representative said that until 2022 the fund relied on liquid investments around the world, and “after 2022 we focused only on direct investments.” In other words, the fund is now betting on commercial real estate. At the same time, Balchug Capital emphasized that the fund’s money “is the personal and credit funds of David Amaryan.” A real estate market consultant who requested anonymity said that loans were provided, among other things, by Armenian banks. Amaryan did not meet with Forbes.
Opened doors
Amaryan is 43 years old. In one of his interviews, he said that he was born and raised in Yerevan, his father is a scientist, his mother is a teacher. According to him, as a child he was interested in “everything related to finance and calculations.” He and his younger brother even came up with “their own Amaryan corporation with beautiful high-rise offices, cars, many employees, and thus visualized their future.”
In 1995, when he was fifteen years old, the American Embassy in Armenia selected Amarian for an exchange program and awarded him a scholarship to study at the prestigious Trinity Prep school in New York. After graduating in 1997, he became a fellow at Miami University in Ohio, and after graduation, he accepted a position as an associate portfolio manager at the investment firm Sanford C. Bernstein (now AllianceBernstein) in 2001.
After living in New York for almost ten years, Amaryan returned to Armenia and then moved with his family to Moscow. In 2004, he began working at the investment company Troika Dialog (now Sberbank CIB) created by Ruben Vardanyan, where he served wealthy private clients. After the 2008 crisis, Amaryan left the company. “I didn’t take anything from anyone, the clients I found for Troika left with me,” he explained to Forbes in 2013.
In 2009, when Amaryan left Troika Dialog, the stock market fell into the abyss. In 2010, he created his first own investment company – BCD Partners (behind closed doors – “behind closed doors”). “We realized that if we didn’t buy [securities] at these [collapsed in 2009] prices, we would have to quit asset management altogether and do something else,” Amaryan recalled in a conversation with Forbes.
Two years later, he decided to rename the company. Amaryan initially believed that “behind closed doors” reflected the principle “money loves silence,” but it turned out that such a name evokes negative associations among foreign investors. And in 2012, the financier renamed the company Copperstone Capital – after the name of the Copper Stone mountain in the Syunik region of Armenia, near the village where David and his younger brother spent the summer with their grandparents as children.
By that time, Amaryan’s hedge fund, which worked with shares of Russian, European and American companies, had its first auditor (KPMG) and administrator (Trinity). By the end of 2013, Copperstone became one of only three hedge funds managed by Russian managers that showed positive returns. The fund’s strategy was simple: buying securities of companies with good cash flow and no debt. As Amaryan said, “they made good money on the consolidation of the pharmaceutical sector in Europe, buying the securities of eight companies, some of which rose significantly in price, some brought losses, but on the whole… remained in profit.”
In an interview with Forbes, Amaryan said that in 2013, Copperstone had about $320 million under management (of which $20 million was its own funds). Copperstone continued to show excellent results. From 2011 to 2018, the fund’s portfolio delivered an average annual return of 16.5%, according to Bloomberg News. Whereas, according to independent international analyst Eurekahedge, the average annual return of hedge funds in emerging markets was 1.6% in the 2010s. And everything would be fine if it weren’t for the scandal that broke out.
First readers
According to New York Times In 2015, the US Securities and Exchange Commission (SEC) filed a lawsuit in New Jersey court against about forty defendants: Ukrainian hackers and traders from different countries, including Russian. The lawsuit alleged that back in October 2010, a group of hackers sent an enticing video to traders. The videos showed how hackers were able to hack the databases, information disclosure and business news systems of American companies Business Wire, Marketwired and PR Newswire. This made it possible to transmit to traders not yet published, business-sensitive press releases.
Traders became interested in the offer and, as follows from the lawsuit, ended up earning more than $100 million. Among the defendants were five Russians who received approximately $17.3 million from insider transactions. And although the name Copperstone did not appear in the lawsuit, the names of David Amaryan and his companies were mentioned there , as well as Nikolai Slepenkov, associated with him – RBC reported that his place of work at Copperstone Capital was mentioned on his page on VKontakte (now VK).
The SEC alleged that traders were trading in the same securities and from the same IP addresses. Their firms, having completed 149 transactions, earned $5.8 million. For example, according to the SEC lawsuit, in October 2012, after the close of trading on the Nasdaq exchange, the active sports apparel seller Zumiez posted a press release on the server about lowering its sales forecast in the third quarter. Half an hour later, Russian traders began selling Zumiez shares, and two and a half hours later, Newswire published the information. The company’s share price fell by $4. During this time, companies associated with Amaryan managed to earn about $67,000.
At trial, Amaryan stated: “I have never possessed or traded material non-public information obtained through illegal means. I also never directed anyone working for me to obtain or sell such information” (quoted by Reuters). As a result, in 2016, under a settlement agreement with the SEC, Amaryan and his companies paid a $10 million fine for insider trading. The fund’s share price collapsed from almost $170 to $67. Some large clients withdrew their money.
“For foreign clients – American, European – insider trading is a very important point,” explains a top manager of a financial company. “They pay attention to reputation and in the case of such courts they react instantly, simply stopping cooperation. However, some clients from Russia, the CIS, and developing countries ignore these points.” For such clients, says Forbes’ interlocutor, “what’s more important is not reputation, but profitability, and this is the average approach of a Russian or Chinese investor.” According to the financier, “there has been a replacement of the client base: institutional Western investors have left and Eastern investors who are less sensitive to ethics, but sensitive to profitability, have entered.”
Not the end of the world
About three years later, Amaryan renamed his foundation again. Since January 2019, it became known as Balchug Capital. As a representative of the fund told Forbes, “the fund’s strategy has always been event driven special situations (“following events and special situations”), we have always looked for assets whose value is due to some events, such as corporate disputes, M&A, restructuring, bankruptcy , buyback, will be disclosed in the future.”
By 2019, Bloomberg estimated, 80% of the fund’s funds “were invested in Russia through trading in Russian stocks and other securities in New York and London.” Bloomberg in 2020 reviewed Balchug Capital’s letter to investors. It said that the fund’s return on investment increased by 23% in 2020, and by 91% since its inception. “The Russian market, after poor performance in 2020, should achieve much better results and outperform most of its competitors,” Amaryan predicted in an interview with Bloomberg in 2021. Almost half of Balchug’s funds were then invested in Russian shares and shares of companies in the CIS countries.
However, 2022 turned everything upside down. Back in early February, in an interview with the Financial Times, Amaryan was “quite confident” that there would be no military conflict between Russia and Ukraine. Two months later, Amarian told The Wall Street Journal that in the early morning of February 24, he was awakened by a phone call from a friend who advised him to immediately turn on the news.
President Putin in his address announced the beginning of a “special operation”* in Ukraine. Russian stocks around the world collapsed, foreign exchanges were soon canceled, and the Moscow Exchange froze trading in Russian securities. They opened only in Moscow and only a month later.
“It was a shock,” Amaryan recalled. “From that moment [February 24] I knew it would be a difficult period.” Nevertheless, already on February 25 he began to buy. His clients were not tormented by moral qualms: they told him to do his job and make money. “The largest oil companies and the largest banks cannot be worth several hundred million dollars,” Amaryan explained.
In addition, as the financier explained to The Wall Street Journal, he was waiting for the moment when foreign investors would start selling Russian real estate: prices had to fall by at least 20-30%, and this could be the best entry point into the new market. “There have been many examples in our recent history where people thought the world was going to end,” he mused aloud. “But that didn’t happen.”
Comfortable partner
In addition to the fall in the market price of real estate, there was another attractive circumstance. The government commission has established a minimum discount of 50% from the market value for foreign investors selling Russian assets. “If they want to leave, let them experience certain exit costs,” Finance Minister Anton Siluanov said in June 2022.
Amaryan was first interested in the St. Petersburg class A business center Pulkovo Sky – three 14-story towers with a total area of 76,000 sq. m. m, rentable – 45,000 sq. m. The developer of the project, the Finnish family company EKE, worked back in the USSR and built, for example, the Avtovaz scientific and technical center and settlements for workers on the Urengoy-Uzhgorod gas pipeline. EKE started the Pulkovo Sky project in 2007. At that time, the Finns estimated investments at €115 million; they raised 36% of the funds from the Danish Danske Bank. EKE later found a financial partner, the investment firm Vicus, which received 40% of the project. By the time of negotiations with Amaryan and at least until January 23, 2024, the BC was pledged to Raiffeisenbank, according to SPARK-Interfax.
The center is owned by the company “EV-Invest”, which belonged to EKE (60%) and Vicus (40%). Amarian bought it.
The financier personally participated in negotiations with the Finns, a person well aware of what was happening told Forbes. “In that situation, they were simply sad that they were forced to leave the Russian market,” says Forbes’ source. — Of course, there were no such plans. The mood was funereal.” The Finns had a “very pleasant impression of Amaryan as an intelligent, noble, intelligent and educated person.” EKE did not respond to Forbes’ request. A representative of Balchug Capital said only that “the negotiations were constructive and lasted less than six months.”
Approximately 90% of the Pulkovo Sky area is leased to Gazprom structures. As Sergei Duvanov, project manager of the investment department of the consulting company NF Group in St. Petersburg, commented to RBC after the completion of the deal, this has both a positive and a negative side. After all, a large tenant provides stable rental income (according to Forbes estimates, in 2023 it amounted to 1.2 billion rubles), but the owner faces a risk – if the tenant wants to change the terms of the contract, the owner will have to make concessions. According to Duvanov, the transaction amount could hardly be higher than 6 billion rubles (about €60 million). Balchug Capital told Forbes that they did not disclose details, and the transaction amount “was attractive.”
Not everyone was able to buy real estate from foreigners in Russia. An example from the same St. Petersburg. The TPS Real Estate company, which is owned by a trust of the families of entrepreneurs Alexander Ponomarenko, Alexandra Skorobogatko, as well as the daughter of billionaire Arkady Rotenberg Liliya, seemed to be the main contender for half of the shopping and entertainment center (SEC) “Gallery” on Ligovsky Prospekt. The total area of the shopping center is 192,000 sq. m. m. The share was sold by Morgan Stanley Real Estate Fund VII, the other half belongs to Mubadala Investment Company from the UAE. As the consultants who worked with the project explained, TPS Real Estate was unable to buy this share due to political risks. A source close to Morgan Stanley said the deal was “hardly possible” at all.
Amaryan clearly has fewer political risks. And Balchug, meanwhile, was working on a new deal. The Fund drew attention to part of the Moscow Metropolis complex, consisting of two phases of a shopping center and three office buildings. It was built in 2009 by the Kazakh developer Capital Partners, owned by Serzhan Zhumashov and Turkish entrepreneur Burak Oymen. The object is noticeable. “We were lucky,” Zhumashov told Kazakhstan’s Forbes, “thanks to the location and quality of the Metropolis project, it was immediately full of tenants.” Zhumashov did not respond to requests from Russian Forbes.
In 2013, a fund managed by Morgan Stanley Real Estate Investing bought the first phase of the shopping center from Capital Partners for a then-record $1.15 billion. In the same year, Morgan Stanley resold this asset to the CalPERS fund of the American investment company Hines. In 2015–2018, Hines, together with the Czech PPF Real Estate, acquired all three towers of the business center (PPF withdrew from this project in May-June 2022).
According to a real estate market consultant, the second stage of the Metropolis shopping center is still owned by Capital Partners, which was going to buy back the first stage and even received permission from the FAS. But Amaryan was ahead of the Kazakhs. Before selling its part of the shopping center, the Hines company, which also managed the project, tried to fix rental rates in euros and increase them by 5% compared to the previous agreement; the new draft agreements stipulated that they could not be terminated over the next three years. “This is common practice,” says one real estate market consultant, “but it has been extremely difficult to conclude agreements on rates denominated in euros in the current market.” Some of the tenants headed for the exit.
Amarian also rushed things. He received approval from the Government Commission, and three months after the completion of the deal in St. Petersburg, in April 2023, the first stage of Metropolis (total area 205,300 sq. m, rentable area – 82,000 sq. m, rental income in 2023 – 4.5 billion rubles) transferred to Balchug Capital. The transaction amount is not disclosed. The Kazakhstan Eurasian Development Bank noted in its review of direct investments in the Eurasian region that Balchug paid $735 million. After the transaction, Balchug Capital actively filled vacant space that was occupied by foreign retailers before the “special operation.”
Amaryan seems to want to become an even bigger rentier. “Many international investors who own Russian assets and are forced to sell them face significant difficulties,” he said in 2023 after purchasing Metropolis. “This creates significant opportunities for investors from other countries who have the legal opportunity to purchase these assets. We are building a portfolio of the highest quality commercial properties and plan to increase our assets to $3 billion by the end of the year.” So far this has not worked out, but opportunities remain.
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