This content is from: Opinion

Metamorphosis

William Browder, founder of Hermitage Capital Management, made his name as a bulldozing activist investor in Russia, waging rancorous and highly public battles against corruption and mismanagement in that country’s companies. For his trouble, Browder was barred from reentering Russia in 2005. These days he’s best known for his equally aggressive human rights campaign on behalf of his former lawyer, Sergei Magnitsky, whom Browder maintains was wrongfully imprisoned in Russia as his proxy. Magnitsky died in prison in November 2009 after months of neglect and mistreatment.

But as our cover story on page 26 explains, Browder is juggling that mission with the day-to-day business of running his firm. Now based in London, Browder is trying to reinvent himself as a global emerging-markets investor. The transformation hasn’t been easy: Once a $4.5 billion firm, Hermitage is down to $850 million, and its global emerging-¬markets fund has delivered an annualized loss since its inception in April 2007.

Browder’s struggles may seem familiar to other hedge fund managers, who are fighting battles of their own. On the investing front, many are laboring in the volatile market environment, as our profile of longtime commodity futures trader Patrick Welton on page 48 shows. The manager’s flagship fund has produced double-digit gains in all but one year since its 2004 launch. In 2011, however, the fund was down by more than 13 percent through October, with market swings tripping up its normally sound models.

On the political front, successful hedge fund managers and other wealthy financiers are facing the wrath of protesters around the globe who are fed up with the widening gap between the rich and the poor, and the bailout of Wall Street banks. But as our story on the Occupy Wall Street movement, on page 22, points out, some hedge funders identify with the protesters, and a handful have given them advice and money.

Some managers are starting to agree with the protesters’ argument that the system is rigged. Take the recent bankruptcy of MF Global. The bankruptcy trustee assigned to the case revealed that as much as $1.2 billion or more of client money has gone missing. That money was supposed to have been kept separate from the firm’s own, raising questions about whether the brokerage intentionally and illegally dipped into client funds. One customer has formed a coalition to make sure the money is returned to its rightful owners and has vowed to fight MF Global’s creditors in court. See page 5 for more on that story.

The mess could take years to unravel. But however the MF Global drama and the protest movements play out, let’s hope the result is a banking system that’s less prone to corruption. After all, no one wins in a system designed to enrich a few at the expense of many.

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