“How did a nice boy from Oklahoma end up living in Russia?” bne IntelliNews editor at large Liam Halligan asked legendary Russia investor Michael Calvey in his “When the facts change” podcast. Calvey is the founder of Barings Vostok Capital Partners, who invested well over a billion dollars into Russia’s rise in the boom years but ended up spending two years in jail as a result of a corporate dispute with one of his local partners.

In 1991 Calvey, a newly-graduated aspiring Wall Street hotshot, made his first short trip to Russia and like many that were in Moscow in those days, quickly got sucked in, inspired by the historic transformation the country was going through.

“It was within a month of the Soviet Union ceasing to exist,” relates Calvey. “So as someone in his mid-20s, [a] single man, it was just an absolutely crazy playground and exactly a crazy time.”

Living in Moscow for 25 years, Calvey learnt the language, married a Russian woman, raised a family and forged an unmatched network of personal and business contacts.

With a financial background, Calvey was the pioneer of private equity investments into up-and-coming Russian companies building the new market economy. He launched the fund with a $5mn investment and eventually returned over a billion dollars in profits. “We made 450-times our money,” Calvey told Halligan with his trademark modesty.

During the boom years of the noughties Calvey had acquired such a record of success with seed investments into things like Yandex, Russia’s answer to google that eventually IPO’d for $11bn in New York, that Barings was scooping the lion’s share of all international private equity investment mandates allotted to a punt on Russia. The fund became the only game in town and a whole generation of Russian entrepreneurs remain grateful to this day to Calvey for his help and advice.

It all went wrong on St Valentine’s Day in 2019, when he fell ran into a dispute with a co-investor in Vostochny Bank, who used his connections to the Federal Security Service (FSB) to have him arrested. He was accused of embezzling RUB2.5bn ($38mn) from Vostochny Bank, a case that was widely viewed as stemming from a corporate dispute with other shareholders. Calvey denied the charges, asserting that the matter was a civil disagreement that should not have led to criminal proceedings. His arrest sent shockwaves through the international investment community, raising concerns about the risks of doing business in Russia. He was eventually convicted of the charges, but given a suspended sentence and after serving a ban from leaving the country eventually left to join his family in Switzerland, where he now lives.

Barings cut a deal with its Russian partners, agreeing to pay their share into recapitalising Vostochny Bank that the Central Bank of Russia (CBR) had demanded – the cause of the dispute – clearing the way for the courts to hand down a lenient sentence. But as Calvey told bne IntelliNews at the time, once the wheels of the Russian legal system have been set in motion there is no stopping them, and with a 99% conviction rate in any case, a conviction is almost inevitable; what is at stake is the sentence the court will decide on. For long-term Russia-watchers, Calvey’s sentence was as light as it gets. And one of the key elements to scoring this “victory” was Calvey and the Barings team were extremely careful not to politicise the case, asking their many journalist friends to frame the story as a “corporate dispute” and going out of their way to keep the US embassy and State Department’s involvement to a minimum.

For his part Russian President Vladimir Putin was backed into a corner. While Calvey was extremely well known to the investment community and international financial press, he had a very low profile in Russia. Had he been more famous in Russia, he might not have been arrested; nevertheless, remarkably after he was jailed several senior Russian officials broke ranks and publicly called on Putin to intervene, most notably Kirill Dmitriev, the head of Russia’s sovereign wealth fund, the Russia Direct Investment Fund (RDIF). Their public support was not without risks to their own careers, and a testament to how well-liked Calvey was by everyone working in finance in Russia.

But Calvey had been arrested by the FSB – Putin’s wellspring of power. He was not going to embarrass his security clique by publicly overturning their decision and implying they had made a mistake. So the case was left to rumble on, but with many concessions, such as letting most of the accused out of jail and putting them under house arrest. In an extremely unusual move, the General Prosecutor’s office quietly expunged all charges against him a few years later and wiped his slate clean.

Calvey’s arrest came at a time when Russia was rapidly moving to a darker place following the halcyon days of the boom years.

“The authoritarian trend and the increasing role of the security services, my business opponents, their only option to preserve their assets was to go on the offence and have me arrested,” Calvey relates. “The door burst open and ten men came charging through with guns drawn and shouting at me to put my hands in the air… You realise the system is so totally stacked against you that only divine intervention can get you out.”

Fully exonerated of all wrong-doing, Calvey is currently chairman of Baring Ventures, which sold all its Russian assets after Putin’s invasion of Ukraine and now focuses on other international markets. His Russian partners in the firm have taken over the Russian assets and remain in business in Russia, still helping aspiring entrepreneurs from the real economy make their dreams come true.

 

Watch the entire interview here.

Calvey’s newly-published book – Odyssey Moscow: One American's Journey from Russia Optimist to Prisoner of the State – is dedicated to the cellmates who helped him through his nightmare prison experience. It is the story not just of one man – but of an era of Russian hope and aspiration derailed.