Timur Turlov’s sleepy brokerage used to rely on just two dozen day traders for most of its volume.
These days, thanks to raging demand for stocks from retail investors, his Freedom Holding Corp. is booming and the 32-year-old is a billionaire.
It’s one of the more unlikely global fortunes. Turlov’s firm is incorporated in Nevada, but its main office is in Almaty, Kazakhstan, where it caters to Kazakhs and Russians seeking the next hot initial public offering from Silicon Valley. Commission income has surged 51-fold since 2016, and tens of thousands of new clients have signed up.
“Volatility has brought a huge number of people to the market,” said Turlov during a Zoom interview in August, adding that his personal wealth is just “a formal number” and that he’s glad the company’s revenue is growing. “The brokerage industry is on the rise.”
Turlov, a Moscow native, owns a 73% stake in Freedom and is now worth $1 billion after shares of the U.S.-listed company surged 64% this year. It’s another sign of how the global pandemic has ignited armies of day traders seeking to capitalize on wild stock swings — mostly upwards — from America to China, India and South Korea.
The market enthusiasm has created massive amounts of wealth and produced new billionaires in the brokerage sector. But it’s also raised concerns that equities have rallied too far. In the U.S., retail investors using Robinhood Financial’s trading app have piled into tech shares and fears have grown over bubble valuations.
About six years ago, at least 80% of Freedom’s volume came from a smattering of day traders. The firm is now among Russia’s 10 largest brokers and the biggest in Kazakhstan, with 152,000 clients as of June — up from 46,000 in March 2018. Net income more than tripled to $22 million in the year ended March 31 as revenue climbed 64% to $122 million.
Turlov’s ascent really started in 2013, when he bought a small investment company in Almaty, Kazakhstan’s largest city, and incorporated it with Freedom Finance IC, the Russian brokerage business he founded at the height of the 2008 financial crisis. In 2015, he acquired BMB Munai Inc., a Kazakh oil-and-gas company with a listing in the U.S., renamed it Freedom Holding Corp. and had it take over his brokerage assets in Kazakhstan and Russia.
For companies that don’t need to raise money, reverse mergers are a way to list cheaply without having to go through the cumbersome process of an initial public offering. It gives foreign firms greater access to the U.S. market, something that helped improve Freedom’s credibility back home.
Freedom has subsidiaries in Ukraine, Uzbekistan, Kyrgyzstan, Germany and Cyprus, according to a February presentation. It can trade U.S. shares but isn’t regulated as a U.S. broker as it doesn’t have the license to operate there. Its client orders are routed through third parties.
The firm’s ability to invest in American equities — including new listings — is one of the key reasons for its popularity. The IPO of gaming company Zynga Inc. in 2012 was the first one clients could participate in, followed by Facebook Inc., Alibaba Group Holding Ltd. and Tesla Inc., Freedom said.
“It’s a very appealing market, not only for our own citizens but for the citizens of the world,” said Shane Swanson, an analyst at consultancy firm Greenwich Associates in Connecticut, referring to the U.S. market. That’s because it’s “highly regulated and extremely efficient, with deep liquidity,” he added.
The same cannot be said about the relatively illiquid Kazakh market. The government is still trying to lure back international investors after a decade of banking scandals.
Freedom itself came under the spotlight for spending several years building positions in a small number of Kazakh companies using borrowed money and acting as a market maker for the shares. While the practice carried potentially high risks if lenders had redeemed facilities instead of rolling them over, the stocks experienced almost uninterrupted rallies, boosting Freedom’s trading profits and helping it gain new clients.
Last year, an S&P Global Ratings report highlighted that risk, saying that Freedom’s positions in mobile operator Kcell JSC and state-run utility Kazakhstan Electricity Grid Operating Co., also known as Kegoc, represented almost 90% of the broker’s consolidated capital base. The broker has since lowered its stakes, and the ratings firm said in June it expected Freedom to reduce its proprietary investments in Kazakh equities by almost 80% by mid-2020.
As of August, Freedom entities owned 2.14% of Kcell and 0.27% of Kegoc, while Turlov himself held stakes of 0.55% and 0.33%, respectively, according to the brokerage. Freedom has been a market maker in Kegoc since 2015.
Turlov said his firm “never violated any regulations.” In an emailed statement, Kazakhstan’s financial regulator said Freedom “complies with prudential requirements for equity capital adequacy and liquidity,” adding that the company’s securities portfolio “is positively assessed by the regulator.”
The brokerage doesn’t rule out the possibility of listing on the Moscow stock exchange after acquiring one of Russia’s oldest brokers, Zerich Capital Management, in July and a Kazakh lender, Kassa Nova Bank, in August. Freedom opened an office in Berlin and may consider purchasing a broker in the U.S. to improve its infrastructure, Turlov said.
“We understand that there will be consolidation in the market and, probably, we will try to be a part of this,” Turlov said, adding that he doesn’t intend to sell his shares in the near future. “I hope we will be able accurately and effectively expand our geography.”