With Vladimir Putin now in his last consecutive presidential term, post-communist Russia’s first generation of billionaires is starting to test his commitment to private property by giving parts of their wealth to heirs.
One of Russia’s oldest tycoons, Vladimir Evtushenkov, 70, led off last summer, ceding a stake in the AFK Sistema conglomerate to his son Felix shortly after Putin was sworn in. Lukoil PJSC co-founder Leonid Fedun followed, granting a total of $1.3 billion of the energy giant’s stock to his son and daughter in October, just before Evtushenkov doubled Felix’s holding to 5 percent.
Unique among the biggest economies, Russia last saw major fortunes change hands via inheritance more than a century ago, before the Bolsheviks seized power, according to the Skolkovo Wealth Transformation Center in Moscow. While most restrictions on free enterprise ended along with the Soviet Union, the unwritten rule book for amassing and transferring capital that’s developed under Putin remains a hurdle to the reemergence of dynastic wealth.
“It rests on the informal contacts of fathers, which are difficult, if not impossible, to transfer to children,” said Alena Ledeneva, a professor of politics and society at University College London. Ledeneva, who’s studied and written about Russian power networks for two decades, calls the informal relationships that govern both state and corporate structures simply “Sistema”, or “The System”—the same name Evtushenkov chose for his holding company.
Unlike the West, where independent judiciaries have long had the final say in matters of ownership, in Russia the ultimate arbiter is the Kremlin and the legions of bureaucrats and law-enforcement personnel it commands. Safeguarding wealth often hinges on personal ties and tacit agreements with officials that can touch on everything from taxes and favors to civic responsibility and patriotic duty.
Many Russian tycoons don’t want their kids to follow in their footsteps, with some even hiding the true extent of their holdings
For Evtushenkov, who’s widely lauded by peers for his ability to succeed in multiple industries, navigating the nexus of power and money is so nuanced that he worries Felix, 40, may find it difficult to maintain, let alone grow, the investments he oversees as Sistema’s deputy chairman.
“If I were completely sure of this, I would have already transferred my entire business to him,” Evtushenkov said of his son, who’s worked for Sistema since 1999. “If Felix isn’t up to the task, then I’ll just have to find a random person who can preserve what’s been created.”
It’s an issue confronting an unprecedented number of billionaires and multimillionaires worldwide as the current cohort of self-made titans ages along with those lucky enough to inherit riches. UBS Group AG estimates that $3.4 trillion of private assets will be passed on globally over the next two decades.
Of the world’s 500 richest people, 178 received the bulk of their fortune from relatives, including two from China, according to the Bloomberg Billionaire’s Index. They include seven Waltons with a combined worth of more than $150 billion, the Duke of Westminster, who inherited land that’s been in his family since 1677, and L’Oreal SA’s Francoise Bettencourt Meyers, the world’s wealthiest woman.