windfalls were Kremlin insiders. But that isn’t quite true. Of course, onetime apparatchiks have done extremely well in Russia’s transition to a market economy—one of the country’s richest men is probably Vladimir Putin. But in the former Soviet Union, as in the United States, many of the plutocrats have turned out to be the Russian equivalent of public school kids who went to Harvard: close enough to the levers of power to take advantage of the market transition, but also far enough away that they understood that the regime was crumbling.
Mikhail Fridman, an oil, banking, and telecom magnate worth $13.4 billion in 2012, is an archetypal oligarch. He was born and raised in L’viv, in western Ukraine, one of the Soviet Union’s freest and most cultured cities, but also far from the center of political power. Fridman was smart enough to make it to an elite Moscow polytechnic institute, where he earned a degree in physics. But Fridman was both unconnected and Jewish, which blocked him from becoming a total insider. He wasn’t allowed to do graduate research work, as he wanted, and was instead assigned a job in a provincial factory 150 miles outside Moscow.
With hindsight, that exclusion was a blessing. Fridman had been an energetic college entrepreneur, organizing ventures ranging from window washing to a theater ticket purchasing system, and he had accumulated enough rare goods (mostly jeans and caviar) to bribe his way into a choicer work assignment in Moscow. But the experience made him skeptical about his chances to prosper inside the Soviet system and determined to focus on opportunities outside it. By the time the Soviet Union collapsed, and the really big business opportunities materialized, he was already a millionaire, a powerful starting position.
“What I really, really wanted to do, my childhood dream, was to be a physics professor,” Fridman once told me. “If I had been born in America, that is what I would be. Thank goodness for Soviet anti-Semitism.”
The early biographies of the other oligarchs are uncannily similar. Viktor Vekselberg, a metals and oil oligarch, is another Jew from western Ukraine who got a PhD in math from an elite Moscow polytechnic. But he was enough of an outsider that in the late 1980s he decided to supplement his family income—“I really wanted a car,” he told me—by writing and selling computer programs. Again, by the time the Soviet Union collapsed, he was poised to pounce. Boris Berezovsky, an oil, industrial, and media magnate before he lost a power struggle with Putin, was an obscure mathematician and apparatchik when perestroika was first declared, bringing its attendant business opportunities. Vladimir Gusinsky, Russia’s most powerful media baron before he, too, lost a power struggle with Putin, was a Jewish theater impresario who never made it into the first circle of state-supported Soviet cultural intellectuals and who supplemented his income by trading consumer goods like jeans, copper bracelets, and Sony Walkman players in the black market.
In fact, of the seven men who between them controlled half of the entire Russian economy in 1998, and who became known as the oligarchs, six were Jewish and few of them were privileged. The only oligarch who was a real insider, a member of a group known as “the gilded youth” because of their privileged upbringing as the children of the nomenklatura, was Vladimir Potanin, the son of an official in the Ministry of Foreign Trade. Ultimately, that network and that pedigree were a great help to Potanin as he built his metals and banking empire, including control of Norilsk Nickel, the world’s largest nickel producer. And it is no accident that Potanin is the only oligarch who served in the cabinet.
But at the moment of transition, Potanin’s elite background almost blinded him to the biggest economic opportunity in his country’s history. In the late eighties and early nineties, while men like Fridman, Vekselberg, and Gusinsky were experimenting in the small space for private business permitted by Gorbachev, Potanin was still climbing the Soviet political ladder, earning his degree in foreign relations, and winning a coveted job at the Ministry of Foreign Trade. He sensed that the world was changing, and he had just about summoned the courage to start his own trading firm when he was offered a post in Brussels, a plum assignment at a time when travel to the West was highly restricted.
“I was proud and excited and I accepted the assignment,” Potanin told me. “But then, at the last minute, I realized things were changing so quickly in Russia and I had to be part of the change. Everyone thought I was crazy.”
A lot of responding to revolution is about luck. Not just being at the right place at the right time, but also reading the one book or having the single conversation that allows you to spot a nascent opportunity in a fast- changing world. And sometimes, you might have the misfortune to read the wrong book or watch the wrong movie. That is what happened to Kakha Bendukidze, a Georgian-born biologist (yes, another smart outsider) who parlayed his scientific skills and connections into a small manufacturing empire, including ownership of Uralmash, a legendary Soviet heavy machine–building factory.
Bendukidze became a multimillionaire, but he never became an oligarch. Why? “I blame
Soros learned about revolutions the hard way. He compares 2008, with its cataclysmic events and his survival of them, with 1944, when as a Jewish fourteen-year-old in Nazi-occupied Budapest he and his family eluded the Holocaust. The Soroses and their circle of friends had lived comfortable, largely secular lives before the Germans arrived. Many in their community were unable to grasp that that life was over and they needed to flee at once. An exception was Tivadar, Soros’s beloved father, whose experience of the Russian Revolution as an Austro-Hungarian officer had taught him the necessity of responding to revolutionary change with equally radical behavior. Over the objections of his wife and mother-in-law, Tivadar immediately sent the family into hiding—a decision that saved all their lives. Now a fit, often tanned eighty-two-year-old who favors beautifully tailored suits and has a thick, graying head of hair as well as a hearing aid, George Soros thinks his father’s “formative” experience of revolutionary change helped him to anticipate and respond to the current crisis.
“I recognize that sometimes survival requires a positive effort. I think that is really a childhood experience, and it was partly taught and partly experienced…. I had his [my father’s] experience of where the normal rules don’t apply and that if you abide by the rules, you’re dead. So your survival depends on recognizing that the normal rules don’t apply…. Sometimes not acting is the most dangerous thing of all.”
That early life training shaped Soros’s investing style and his investing philosophy. “My theory of bubbles was a translation of this real-time experience. I became a kind of specialist in boom and bust.”
That is certainly the view of his son Jonathan, a triathlete, Harvard Law School grad, and married father of two—but also, as the child of American prosperity and stability, someone who, in his father’s opinion, is not a leader of radical change. Jonathan says of his father: “That experience has allowed him to see through artifice. He can see the things that look like they are very stable—things that look like marble are not marble, they are plaster—and the institutions that we have built are human institutions and aren’t necessarily permanent.”
Although many CEOs and regulators say the crash had been impossible to predict, among professional traders it was commonplace as early as 2005 to believe that inflated house prices and turbocharged derivatives were creating the next asset bubble.
“Whenever I read about people not seeing it coming, I get a kick out of it,” Keith Anderson, Soros’s former chief investment officer, told me. Tall, burly, and soft-spoken, with a modest office decorated largely with photos of his smiling children, Anderson has a friendly, unpretentious air—more Little League dad than Davos man—and a blue-chip money management CV. “Most every intelligent person—we all understood and knew that there was a housing bubble, that the CDOs and the derivatives were creating distortions.”
The difficulty was knowing when the bubble would burst. “What the problem was,” he said, was “that many of us had thought that for too long and were wrong. We knew it was occurring, but you wouldn’t want to be betting against it, because you weren’t getting satisfaction.
“There are multiple versions of history,” Anderson explained. “The common one, in the normal newspaper, is ‘What fools! No one saw it coming.’ Lots of people saw it coming. The question was: When was it going to stop? What was going to cause it to stop? How do you profit from it?”
In mid-2007, when Soros decided he needed to actively manage his money again, Quantum’s funds were mostly entrusted to outside managers. They, and the smaller number of inside managers, operated with “total discretion,” Soros recalled. “They have their own style and their own exposure and some of them have money for
