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Financial diaspora: how Russians build business in the West

Thursday, 18 December 2014 14:03

Natives of Russia became financial elite of New York, London and Chicago. Forbes studied the most impressive stories of success

Many citizens of Russia gone to the west are successfully engaged in financial business though the competition is much higher there, than in the homeland. How Russians became financial elite of New York, London and Chicago? 

Adventures of electronic

On the 50th floor of a skyscraper on Water Street in New York there’s an excellent view of the passage East river, where ocean liners and huge barges go. Here an office of the Fastmatch company settles down, this firm developed and provided an electronic off-exchange platform (ECN) to banks and other participants of the currency auction. At the beginning of the 2000es the largest finance companies of the USA created own interbroker ECN and dark pool networks where demands of institutional and retail clients united. Electronic off-exchange platforms allowed investors to expand the offer of actions, to save on commission charges and to avoid the sharp change in price after large deals.

Fastmatch was thought up and realized  by natives of Russia Vladislav Rysin and Dmitry Galinov. Sixteen-year-old Dmitry, the current president of Fastmatch, was sent the New York Baruch College in the 1990s by his father Yakov Galyametdinov from Kazan. The father was afraid for his life, shortly before it the son of his partner was killed, but in 1996 when Dmitry stopped studying, Galyametdinov was also killed. Dmitry got a job as an analyst in Willowbridge Associates hedge fund, where not only calculations, but also dialogue with clients was important. They couldn't utter the Galyametdinov surname, therefore Dmitry became Galinov.

In 2005 he already directed a strategy of an electronic platform of Direct Edge and increased its turns from $20 million to $550 million. Then bosses of Credit Suisse bank became interested in Galinov, its ECN Crossfinder strongly lagged behind on turns the main competitors. In two years thanks to Galinov's efforts Crossfinder became the first and by the time of his leaving in 2012 twice overtook the former leader SigmaX from Goldman Sachs. What is the secret of his success? Galinov wholesale redeemed retail clients demands from brokers, who were brought together on a platform with demands of institutional investors.

Good results brought him an idea to create his own network, but in the currency market where there was no so fierce competition and regulation. The professional with experience of creation of global IT products was necessary for this purpose. The acquaintance told Dmitry about Vladislav Rysin who worked in "Troika Dialog", and before that he supervised various projects of global trading in Credit Suisse for eight years. "We talked to him, but it turned out nothing" — Galinov remembers. At that time Rysin completely accepted his work, but in 2011 when sale of "Troika Dialog" to Sberbank began, the situation changed. Right after completion of the transaction in February of the 2012es Rysin left the company.

Work in large bank reminds him a big liner: "All know where it floats, but you won't take it away from a course, though you can try to change bad mechanics under way".

In March, 2012 Rysin together with Galinov already worked for Fastmatch. "Vlad completely trusts me on business, and I trust him on technologies" — Galinov says. And in July they started the first auction. Technological Next Fund became the strategic partner of the company from shares of nearly 40%. The fund provided to Fastmatch with ECN Crossfinder technology which cost $50 million. Another 40% in the capital of Fastmatch belong to the broker FXCM. "When you do a startup, your share decreases, but strategic partners are always more comfortable" — Galinov explains. They still had small shares, in the project there were also other minority shareholders.

In Fastmatch there’re about 150 currency pairs, and also gold and silver. In July, 2014 the company set up the next record — turns in a day made $20 billion. Competitors of FastMatch — EBS ICAP, Currenex, Thomson Reuters and HotspotFX. The company exposed servers in New York, Tokyo and London. Also it has small office on development in Russia.

The company has several hundreds of clients. "Large banks, high-frequency traders, large market makers, also hedge funds and retail trade in our company" — Rysin says. How much does Fastmatch cost? In 2012 Thomson Reuters bought an electronic platform FXall for $450 million, its turns were twice more, than at Fastmatch. "We want to become number one and to overtake EBS and Reuters which trade for $60-70 billion a day, for now we trade for $10 billion on average. The company reached profitability at the end of last year" — Galinov tells.

The Russian rivers in America

In the Ivanovo region the left inflow of the Klyazma River of Teza flows, there is a small town of Shuya on it, Mikhail Malyshev grew up there. In honor of the river he called his company Teza Technologies— this is one of leaders of high-frequency trading in the USA.

In the childhood Malyshev also didn't dream of America, he grew up in the house which was heated by firewood, his father was a driver, mother taught in primary school.

Mikhail differed from contemporaries only that he won the city Olympic Games on mathematics and physics. "In the eighth class the mathematics teacher brought me tasks from the correspondence physical and mathematical school at Physics and Technology faculty and suggested to do them. I refused, and then understood that it iwas madly interesting" — Malyshev remembers. In 1986 he came to MFTI on faculty of the general and applied physics, studied physics of plasma, and on a practical course at the Kurchatov institute was engaged in stellarator — reactors for the operation of thermonuclear synthesis.

When the Soviet Union collapsed, Malyshev with his wife Oksana were thinking, whether it was worth pursuing science in MFTI where the grant was $8, or to try to earn on the apartment in Russia, having gone to the USA. They chose America. It was necessary to buy air tickets, to pass examination in English, and then to enter the USA university. They hadn’t money. He borrowed one hundred dollars from Malyshev’s cousin, who already moved to the States, his wife was helped by the Ukrainian relatives. Fullbright organization which gave grants to scientists and students helped with tickets.

In 1993 Malyshev came to postgraduate study of Arizona University, where they were paid a grant for $9000 a year, later Mikhail moved to more prestigious Princeton. It wasn't possible to save for the apartment: spouses paid for the credit for second-hand "Toyota". The first restaurant where they could go was Indian "all for $7".

In parallel with study in Princeton Mikhail got a job in the Bell Labs company which developed a set of technologies from the transistor to the UNIX operating system. There he worked few years and after the end of the project on low-temperature plasma for chips he started looking for something new. His wife worked in Mitchell Madison Group consulting firm. And in the 2000s Malyshev also became a consultant in McKinsey, he liked it very much, but there was no analytical work. "I made the project connected with hedge funds for McKinsey and understood that it was the thing that I wanted" — Malyshev remembered.

Natives of Russia became financial elite of New York, London and Chicago. Forbes studied the most impressive stories of success.

Having left the company in 2003, he settled to work in the Chicago office of Citadel hedge fund of Kenneth Griffin where absolutely new business was constructed — high-frequency trading (HFT). Excellent education allowed Malyshev to apply the methods available not to all traders and analysts in trade. The company traded practically in all tools and on all continents, except Africa. Almost all players with the Wall Street wanted to buy their team from Citadel, but Malyshev decided to construct business himself. He registered Teza Technologies, but he violated the nine-months agreement on not competition to Citadel. The company appealed to court. From indications in court it became clear why Citadel so was afraid of the competition: from 2003 to 2008 Malyshev increased profit of the division from $4 million to $1 billion. In 2008, according to Citadel, Malyshev earned $150 million.

In October, 2009 Citadel won the claim. The hedge fund asked $15 million penalty, but the judge decided that Malyshev has to pay $1,1 million. Judicial proceedings with Citadel didn’t strongly disturb business of Teza. For the last five years the staff of the company grew from three to more than 60 people, it has offices in Chicago, New York and London. In the company, there are no traders, and hundreds of its automatic strategy develop mathematics and physics, or "quanta". Malyshev says that the company earns including on granting liquidity in the market. Teza Technologies doesn't open any financial performance, as well as all its competitors in the market of high-frequency trade.

Now Teza actively trades on own means, but expects to open not high-frequency fund. "At the end or the beginning of the next year we will open. We have inquiries from those who want us to operate their money" — Malyshev says. He hasn’t been for a long time in Russia, after all business demands continuous presence. Maybe therefore the native of Shuya can name the funds after Russian Rivers Lena and Neva.

Economic physicist

"I, in general, always wanted to be a lawyer" — Kirill Ilyinsky tells, in the early nineties he ended physical faculty in the Leningrad state university. After doing the master's thesis in 1994 he went to go in for theoretical physics to London where he started working in University of Birmingham. His income in Great Britain wasn't so great and he made no more than £15 000 a year. He wasn't going to remain there forever.

In 1996 he was interested in problems of application of methods of theoretical physics in modeling of processes in the financial market. There was his book on physics of finance, Scientific American wrote about it. Ilyinsky became recognized. Thanks to new science — economic physics — he got communications among bankers and left university. In the 2000s he was taken for work as a deputy chief of analytical management of exotic products in Chase Manhatten.

In four years he grew up to the vice-president of JPMorgan Chase, but he wasn't happy: "Globally in bank nothing depends on you, you are replaceable, and it is difficult for a scientist to reconcile to it".

In 2004 Ilyinsky decided to leave the bank and together with the former head of European Credit Trading in Goldman Sachs John Bruhat and the marketing director of Cheyne Tim Goodale to create the Fusion Asset Management (FAM) company. It collected $40 million in Fusion Relative Value Credit Fund, the part of funds was allocated by an incubator for Arundell Partner funds. For the first two years the Fusion fund earned 16% and grew to $150 million. But Ilyinsky's partners went to the Aladdin Capital company.

Ilyinsky had only management company and the personnel. He sold a half of FAM to the former clients in JPMorgan — the Plexus Capital company which had more than $1 billion in management. But in 2008 Plexus Capital unexpectedly lost a third of assets and was gradually closed, and its share in FAM was redeemed by Ilyinsky and his employees. Even before crash of the shareholder Ilyinsky managed to develop a product line — there were funds and products of Fusion Fund, Fusion LIBOR + 800 UCITS and HFR RVA Fusion Master Trust. Funds several times got in top-5 Bloomberg ratings. Now the company receives commission charges from assets worth $400 million. Wealth management makes about 40% of profit of FAM, 30% is the share of investment products and consulting for corporate clients.

"Our business has changed" — Ilyinsky says. Already now Chinese make more than two thirds of clients of the company. In addition to Chinese Ilyinsky wants to serve English pensioners. FAM obtained the license of the independent pension adviser (IFA) and can make recommendations about management of pension accumulation.

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