The Mysterious $4 Billion Kazakhstan-Based Brokerage Behind An Opaque Hedge Fund’s 500% Returns

Just your average, run-of-the-mill, hedge-fund-investing-in-a-brokerage-based-in-Kazakhstan returning 500% story. We know, the newswires are flooded with them, and you’re tired of hearing about them, right?

That, of course, is sarcasm.

But for the part about returning 500% based on the operations of what some would call an opaque overseas entity. And it’s all because of a mysterious and obscure brokerage called Freedom Holding Corporation, which purports to provide “retail securities brokerage, research, investment counseling, securities trading, market making, corporate investment banking, and underwriting services”. Among those services, it claims to open up access to U.S. markets to people overseas. 

Freedom claims it is even able to get its hands on hot U.S. IPO listings, according to a Bloomberg look into the company.

Russian billionaire Timur Turlov, who is 33 years old and listed as Freedom’s CEO and Chairman, told Bloomberg: “We remain one of the few floodgates to the Western market for customers from our region.”

And the hedge fund posting the incredible returns runs through Belize and is “personally controlled” by Turlov. The fund’s connections across Wall Street has “secured access to hot new stocks in America” and is allowing Russians, Kazakhs, Uzbeks and Ukrainians to have access to U.S. IPOs, Turlov says.

The arrangement is being done in a manner where the more shares of Freedom that Turlov’s customers buy, the more exposure to U.S. listed IPO’s they get 

Freedom claims to have given its clients access to more than 100 U.S. IPO’s, including Airbnb and Bumble. 

Turlov explained that he gets in on the names through “an affiliate of a hedge fund that buys the shares from underwriters and passes them along”. Of course, Bloomberg continued to note, that firm’s identity is “confidential” and doesn’t appear in SEC filings.

Reena Aggarwal, director of Georgetown University’s Center for Financial Markets & Policy, told Bloomberg she had “never seen” anything like the arrangement. 

Freedom’s IPO business is a “marginal” part of the business, Turlov told Bloomberg. Its pre-tax profit was up about 6x in the FY ending March 31, 2021, to $173 million. The brokerage says it has 290,000 customer accounts – a large number for a small region. 

Yet the access to IPOs is described as “Freedom’s specialty, their absolute advantage,” by Daniyar Temirbayev, who heads the Qazaq Association of Minority Shareholders.

Turlov founded freedom in 2008, and his firm now has 100 branches, more than 2,000 employees, and is worth almost $4 billion. Turlov controls almost three quarters of the company and has made himself a billionaire “several times over”.

Not everyone is buying the story right away, however. When asked what chance Freedom would have to getting in on oversubscribed IPOs, Jay Ritter, a finance professor at University of Florida in Gainesville, replied: “Zero”. 

You can read Bloomberg’s full profile of the business here