With Bumi, his recently floated mining operation, hit by scandal, the son of a banking dynasty is in the headlines again
Two years ago, Nat Rothschild received an important telephone call. On the other end of the line that day in October 2010, hawking a deal, was Ian Hannam, the JP Morgan banker and a former territorial in the SAS.
Hannam had identified a pair of coal mining firms in Indonesia he believed would make decent targets for Rothschild’s newly floated £700m cash shell, Vallar – including PT Bumi Resources, a highly indebted miner controlled by the Bakrie family. After just two meetings and three weeks, the scion of the famous banking family took the bait. “One has to be decisive when opportunities present themselves,” he said afterwards.
At the time there were many concerned City observers who, given the Bakries’ already controversial reputation, described the financier’s decision to buy a 29% stake in the miner in less positive terms. But scepticism about the deal in the Square Mile is now almost universal after last week’s news that Rothschild’s vehicle had launched an investigation into allegations of financial dishonesty at the Indonesian firm. The London-listed shares that Rothschild had floated as Vallar, and had since been renamed Bumi plc, slumped by 40% in two days.
Worse still, Rothschild’s Vallar investors have now lost 85% of their stakes since the 2010 flotation – and when viewed alongside the 22% drop in the value of Rothschild’s oil investment vehicle, Genel, as well as a profit warning earlier this month at the electrical components maker Volex, where Rothschild holds almost a quarter of the shares, some are beginning to question what the financier’s future might hold.
“[The Bumi revelations] are disastrous for the Rothschild name,” says John Meyer, an analyst at Fairfax IS. “It has wiped a huge proportion off the value of the fund and will limit his future ability to raise funds in the City. There may well now be a number of investors who will look to short the other vehicle [Genel].”
There is not much evidence of anybody shorting Genel shares, at least not yet. But, even so, the Rothschild story was not meant to turn out like this.
Having worried his family with his exploits during his school and university days at Eton and Oxford, the playboy partygoer transformed his image into that of a workaholic, jet-setting financier who drank cola instead of cocktails and would fly anywhere on his private jet to seal a deal.
While he clearly started with considerable advantages in life, he managed to earn respect in financial circles by being seen to have made money by using his wits, work ethic and family name, and not simply by exploiting the vast fortune generated by his forebears.
Still, Rothschild is thought to have initially attempted to rope his father, Lord (Jacob) Rothschild, into the Vallar deal via his $2bn investment trust RIT Capital Partners. When Rothschild père declined, the son decided to take somebody else’s idea and run with it himself.
In February 2010 the British entrepreneur Hugh Osmond had raised £400m by floating a cash shell called Horizon in order to acquire indebted companies and restructure them. Rothschild called Osmond’s bankers at Credit Suisse to ask if they might do the same for him. They agreed.
The result was Vallar and at the time few questioned Rothschild’s credentials, with some suggesting that he might become the richest Rothschild ever. One source close to the float said: “Nat Rothschild had made a lot of money for himself and other people through [his hedge fund] Atticus. He was a good custodian of other people’s money.”
To a point. Certainly he has always trumpeted the fact that earlier investors in Atticus – which was named after Atticus Finch, the lawyer in To Kill a Mockingbird – made a fortune as they benefited from two market booms. A valedictory communication with investors as the fund was effectively closed in 2009 recorded that Atticus Global was up 19% annually, after fees, compared with a gain of 3.9% for the Standard & Poor’s 500. Rothschild was a massive winner personally too: Alpha, a hedge fund industry magazine, estimated his 2007 earnings to be $250m.
None the less, the full Atticus story is not an entirely glowing one. As the financial system imploded in 2008, Atticus clients became some of the crisis’s most high-profile victims. Investors were withdrawing funds at an alarming rate, and Atticus’s asset base shrank from a peak of around $20bn to around $3bn, which it returned to clients in 2009 after finally admitting defeat. Investors were further riled by the fund’s treatment of a $1bn investment in Deutsche Börse, which Atticus separated from its main funds: clients argued that this limited their ability to withdraw their money.
A further $1.2bn was briefly run as a separate European fund called Attara Capital; it closed this year after assets shrank again. But by that point Rothschild had moved on.
As a co-founder of Atticus, the young financier is thought to be frustrated that he did not receive enough credit for its performance. But Vallar and Vallares – the cash shell that became Genel – were undoubtedly his creations. Rothschild’s pitch was that he would use the funds raised to acquire natural-resources assets in emerging markets, impose western standards of governance on these companies, and thereby unearth hidden gems. Vallar would be a FTSE 100 company, he predicted, and such was his energy and confidence that plenty of investors believed him.
One source with knowledge of Rothschild’s business style said: “He is a phenomenal networker. He collects people. And then puts them together. There is not a meeting that he won’t take.”
This all-encompassing modus operandi has thrown up intriguing deals as well as some fascinating alliances. They include Hannam, the banker who introduced the PT Bumi transaction, who is currently fighting a £450,000 Financial Services Authority fine for market abuse, and Ivan Glasenberg, the multi-billionaire chief executive of Glencore, in which Rothschild invested.
He was also once close to Saif Gaddafi: the son of the now-fallen Libyan leader invited Rothschild to his 37th birthday party in Montenegro, where the financier is investing in a luxury resort. The Gaddafi-Rothschild connections also extend to Jacob, who was a senior adviser to the Libyan Investment Authority.
However, the relationships that always seem to define Nat Rothschild, now 41, are his friendships with former government minister Lord Mandelson and colourful Russian oligarch Oleg Deripaska, who controls the aluminium giant Rusal, in which Rothschild has invested. If Mandelson is viewed as a controversial figure, Deripaska is doubly so, and in July he was accused of an extraordinary array of offences – including ordering an assassination – during a now-settled legal battle with bitter rival Michael Cherney. Deripaska strongly denies the claims.
However, the Russian remains better known in the UK as the third man in an intriguing triangle introduced to the world in 2008 after it emerged that Rothschild had invited then shadow chancellor George Osborne – an old university friend and co-member of the Bullingdon club – on board the Queen K, Deripaska’s £80m yacht, moored off Corfu. They were joined by Mandelson, then the EU trade commissioner, and the conversation proved politically explosive.
Back in Westminster, Osborne gossiped that Mandelson had been dripping “pure poison” about Gordon Brown – which, among other things, provoked much speculation about the previously low-profile links between Mandelson, Rothschild and Deripaska. Rothschild’s revenge for Osborne’s indiscretion was brutal: from his base in the Swiss ski resort of Klosters, he wrote to the Times accusing Osborne and Andrew Feldman, the Tories’ fundraiser, of trying to solicit a donation for the Conservative party from Deripaska – an approach that would have breached party fundraising rules. The Conservatives swiftly denied the allegations, but for months Osborne appeared politically emasculated.
That tale was followed by titillating accounts of the trio enjoying “the most delightful banya“, a traditional sauna in which a young man beats bathers with birch leaves. Rothschild unsuccessfully sued the Daily Mail for libel after it accused him of being a “puppet master” by using his relationship with Mandelson to impress the Russian. But after all the thrashings Rothschild has endured, the real question is: can he re-emerge as a key figure in finance?
He is not currently defending himself in public. But there are still plenty in the Square Mile who, while extremely unimpressed, reckon the City’s habit of forgetting previous disasters when a new money-making opportunity appears means that Rothschild can re-emerge. “His contacts book is large and the family name as good as any,” says one City observer. “I’d bet he will eventually get over this.”