Deconstructing Culper's Short Report on Kaspi.kz

30 pages of exaggerations, strenuous links and false allegations, demonstrating a severe misunderstanding of Russian sanctions - with a couple of valid points sprinkled in.

I wrote an in-depth analysis of Kaspi.kz - the Kazakh fintech and super-app - back in April, and subsequently made it the largest allocation in the VGV Portfolio, at 40%.

On September 19th, Culper Research, an ‘activist short-seller’ (I find journalist short-seller to be a more appropriate description, but alas), published a short report on Kaspi, which sent the stock down from $120 to the mid-90s (it closed most recently at $103 as I write this). There were quite a few accusations, but the gist of it was basically that despite claiming otherwise, Kaspi has many links to Russia and a massive amount of Russian deposits; and also that the CEO and Chairman are a pair of dodgy self-dealers. Culper concluded there is a significant risk of Kaspi being the subject of secondary sanctions, and that delisting from the NASDAQ may be on the cards. Scary stuff.

Kaspi’s initial response was cookie-cutter - “In our view, the report is misleading, inaccurate and misrepresents our business […] our reputation speaks for itself.” - and gave no indication that a more detailed rebuttal was coming. Having a large personal allocation to Kaspi, I found this all rather concerning, so began trying to independently verify the claims made. Kaspi have since published a more detailed rebuttal of the report, but I think there are still some important things to be said - I will summarise my thoughts in this post.

Sanction Concerns

The large stock price drop on what we will see was a rather weak short report shows just how skittish western investors are with central Asian businesses. I think a large part of this is uncertainty about how primary and secondary sanctions work. Culper have taken advantage of this uncertainty very effectively, alluding to the threat of sanctions repeatedly (‘sanction’ appears 51 times in the report’s 30 pages) without ever actually explaining what sanction rules they have violated. For this reason, I think a brief explanation of the sanctions on Russia is warranted.

Primary Sanctions

The first thing to understand about primary sanctions is that they apply to the country that imposes them. The US government decides what the US government, US corporations and US individuals can legally do; the EU member states collectively decide what their governments, corporations and individuals may do. If a country wants to get entities from other countries to follow their rules, they can do so by threatening secondary sanctions (see below).

Exact sanction laws differ somewhat between the countries that have applied them, and can be complex or subject to some interpretation, but western countries have mostly tried to align their rules. Broadly, they fall into several categories:

• Individual sanctions - the US, EU and others have lists of Russian individuals and entities with whom business dealings are not allowed, and for whom any of their assets under the jurisdictions of those countries frozen. These include many Russian politicians, businesspeople and military personnel; political parties and paramilitary organisations; and businesses including many energy, defence, media and IT companies, and most large banks.

• Trade sanctions - lists are also maintained for what types of goods and services cannot be imported to and exported from Russia. Export sanctions include energy/O&G equipment, cutting-edge tech, military or dual-use equipment, luxury goods and more; as well as financial, consulting, engineering, legal and software services. Import sanctions include many commodities such as oil and gas (above certain price caps), coal, and building materials; as well as seafood, cigarettes, and diamonds. See EU list.

• Transport sanctions - the EU, for example, has banned Russian airlines from flying over EU airspace, closed its ports to Russian vessels, and banned Russian road transport operators from delivering products into the EU.

Additionally, while not a national sanction like the aforementioned, the SWIFT system of international payments (which is collectively owned by ~3500 participating banks) has banned 10 Russian and 4 Belarusian banks.

Secondary Sanctions

Secondary sanctions are sanctions placed on third-party entities (potentially including countries) for engaging in certain transactions with sanctioned entities. They serve both to deter third parties from actions which aid Russia’s war effort, or failing that, to make those actions logistically difficult (by restricting their supply and financing, for example). For the most part, the EU doesn’t really use secondary sanctions - it’s more of a US thing.

Crucially, the US isn’t going around threatening secondary sanctions on every company or country in the world that buys Russian cement or sells Russia expensive handbags. The list of things that risk secondary sanctions is much narrower.

So what can get you hit with secondary sanctions?

The best answer to this is given by the 'Secondary Sanctions Executive Order'. It applies exclusively to foreign financial institutions, and says the US can impose secondary sanctions if they conduct or facilitate significant transactions for sanctioned individuals or entities, or supply the military industrial complex with certain goods or services (it doesn’t say specifically which goods/services, leaving it up to the Treasury secretary to determine, but the list may be similar to the US’s list of sanctioned exports).

Where does Kaspi stand?

Kazakhstan’s Agency for Regulation and Development of Financial Markets has stated that Kaspi “fully complies with the sanctions regime of the U.S., the European Union, and other foreign countries”. I have also been unable to find any reason to believe Kaspi risks secondary sanctions, as Culper claims.

I think it’s interesting to note that, despite the 51 counts of ‘sanction’ in the report, at no point does Culper explain exactly what sanction rules Kaspi has violated. In the section We Believe Kaspi and its Partners Now Face the Risk of Secondary Sanctions, their arguments are (1) they amended their customer service agreement to say they won’t work with sanctioned individuals, (2) several Russian payment systems have been sanctioned, and (3) a Chinese fishing company was sanctioned by the US for illegal fishing and labor abuse. How these examples suggest Kaspi is at risk, I have no idea.

The Big Claims

These are, in my opinion, the most significant claims from the report, and the ones that I feel are worth talking about in some depth.

Claim #1 - A large portion of Kaspi’s deposits are Russians

This is really the central point of the report, but is substantiated by very weak evidence.

The quantitative basis for this claim is the series, ‘liabilities for nonresidents, CFC' from Kazakhstan's Monetary Survey of Banks, plotted below.

Clearly, there was a sudden inflection beginning in June 2022, a few months after Russia’s invasion of Ukraine. Culper connects this to the phenomenon of ‘card tourism’ that was observed, where Russians would briefly travel to a neighboring country (often Kazakhstan) to sign up for a bank account and card, allowing them to make SWIFT payments amongst other things. This may well be the case, although certainly some of these deposits represent Russians who have stayed in Kazakhstan. Also, this would be a lot of money per person - about 500,000 accounts were opened by Russians in 2022, coinciding with an increase of almost 2 trillion Tenge, or ~$4b, in nonresident liabilities - about $8000 per person (bearing in mind the mean average Russian only has $5000 in deposits in Russia), for an account they’re only using to make international transactions, not as a savings account. It just doesn’t quite add up.

Culper’s report then shows a few screenshots of Yandex reviews and links to a few threads on the VC.ru forum, where people cite Kaspi as one of the few banks that still issues cards to Russians. From this, they rather boldly estimate that 50% of the new nonresident liabilities since the invasion are Kaspi’s; and therefore that 29% of Kaspi’s overall deposits, and 43% of their new deposits since 2022, are from Russian card tourists.

Turns out they were miles off. Kaspi has since disclosed that only 2.8% of deposits are non-residents, a number which has remained fairly stable over time.

Okay, but why are they issuing banks accounts to Russians at all?

Well, when a Russian citizen tries to sign up for a bank account in Kazakhstan, there is no way of knowing whether they are a refugee fleeing conscription, or a card tourist - a Kazakh address is a requirement to use banking services, so they will have one either way. Should the refugees be locked out from the Kazakh financial system (and therefore most likely a job) just so the card tourists are unsuccessful? I don’t believe so. Of course, some Kazakh banks such as Halyk seem to have simply decided not to let Russians open new accounts, but I wouldn’t necessarily see this as the high road.

That being said, I do think Culper have raised one good point here. Kaspi write in their annual reports “We do not have any exposure to Russia or Russian businesses.” While the interpretation of ‘exposure’ is somewhat subjective, I think that, considering a substantial portion of those 2.8% non-residential deposits will be Russian citizens, and some of them will certainly have returned home after opening an account, ‘no exposure’ is misleading. We’ll shortly see some other examples of what could be considered minor exposure to Russia/Russian businesses. I understand why they would say this in the annual report, but a tad more candor - along the lines of “we have no operations in Russia and our exposure to Russia and Russian businesses is minimal” - would be preferred.

Claim #2 - A large portion of marketplace buyers and sellers are Russian

Culper’s report evidences this claim with:

• A number of screenshots from Telegram groups where people discuss selling to Russian buyers or supplying goods from Russia, on Kaspi Marketplace.

• A blog post from 18^th Feb 2022 where they say Russian suppliers have been able to sell on Kaspi since 2020.

• A listing for a necklace whose country of origin is Russia.

• A search for ‘Russia’ in Kaspi marketplace which returns 13% of all results (~820,000).

Kaspi has disclosed that only 0.3% of order GMV come from non-residents, and they don’t deliver at all outside Kazakhstan, so at worst these are Russian citizens ordering goods to a Kazakh address - which, again, does not come close to violating sanctions (nor would it even if they delivered goods into Russia).

I think it’s likely a significant portion of GMV (13% doesn’t seem unreasonable) comes from Russian suppliers, though not directly. Kaspi has confirmed they don’t allow Russian merchants to sell directly on the website - these will instead supply merchandise to a retail or distribution point on Kazakhstan’s side of the border, who will list the goods. This is not really a surprise - Russia and Kazakhstan share the second-longest land border in the world, and goods from Russia are everywhere in Kazakhstan. Still, it calls into question again Kaspi’s “no exposure to Russia” claim.

Culper may have decided to specifically include the necklace listing because luxury goods is one of the categories that the EU has sanctioned for export to Russia. However, these do not apply to imports, and moreover do not apply to Kazakhstan either way. Trade of luxury goods is not something US has threatened secondary sanctions against.

Claim #3 - Kaspi bought Digital Classifieds (Azerbaijan) from Kaspi CEO for 84x revenues

This claim is factually correct - the 2019 purchase price was $31m and revenue was only $348k in 2018 (see Estonian business register) - but misleading for a couple reasons.

• Culper implies they had to dig around in filings to uncover that Digital Classifieds was owned by Lomtadze - “Blue Ocean filings reveal that it is controlled by Kaspi CEO Lomtadze” - when this information was readily disclosed in the IPO prospectus, as well as regulatory filings.

• The purchase price was actually justified. The three classifieds sites that they bought (Turbo.az - cars, Tap.az - general, Bina.az - homes) had 1.9, 1.6 and 0.5 million MAUs, and 196k, 2.7m and 188k listings respectively in H1’20. The revenue figures reflect massive under-monetisation. The very next year, revenue jumped to €2.4m with a 21% net income margin, and has since compounded to $7.8m in 2023, likely at a much higher margin. If this growth continues, the purchase price will actually have been rather generous.

The Nothing-Burgers

As well as these claims which I felt were worth responding to in some detail, there was a bunch of other fluff - some of it just irrelevant, some misleading, and some simply false - that seems to have been included just to scare skittish investors into selling.

1. Kaspi formed an agreement to integrate Kaspi QR with Russian self-checkout operator Smartix, and “hid this deal from US investors”.

A Kaspi spokesperson has reportedly said privately that they have never had any business with Smartix.

But even if they had, why would they disclose this? Smartix is tiny. Culper reasons that they’re ‘hiding’ this relationship by comparing it to a similar deal made less than a month earlier made with Alipay that they did disclose, but clearly those two deals differ massively in their significance (which one had you heard of, Smartix or Alipay?).

2. Postomats are manufactured in Russia

The Kaspi spokesperson also denied this relationship. Perhaps it’s not uncommon for small Russian companies to lie about projects they’ve done with well-reputed firms. Of course, purchasing Postomats from a Russian company doesn’t come close to violating any sanctions anyway.

3. Yandex.Taxi, a Russian company, is used for marketplace and e-Grocery logistics

Yandex are one of ~60 delivery companies on Kaspi’s logistics platform. And the Russian business has been completely divested now anyway. Yandex.Taxi is also ubiquitous in Kazakhstan, as their version of Uber.

4. Kaspi holds a Moscow-based correspondent account with the Russian arm of Austrian bank Raiffeisen

Banks are one of the areas where there is a risk of secondary sanctions. The US, for example, has threatened secondary sanctions for foreign banks that interact in certain ways with sanctioned Russian banks. However, holding an account with these banks is not one of the violations, and Raiffeisen is not a sanctioned bank. Kaspi’s rebuttal confirms their policy is not to work with sanctioned banks.

5. Kaspi uses the Russian PR firm Contextual Technologies, also used by Bank of Russia

Culper doesn’t cite a source for this and I was unable to find anything to corroborate it. The Kaspi spokesperson explained that Vyacheslav Kim used the PR agency for a private website design project in 2016 and since then, Contextual Technologies has been using an outdated Kaspi logo on its website - I’d wager this is where Culper got this claim from.

6. The Magnum JV is a shady related-party transaction run by Kim’s daughter

I’m not entirely sure what Culper’s point was in this section. In 2023, Kaspi formed a $155m JV with Magnum, Kazakhstan’s largest grocery chain, for an e-grocery offering. Magnum is majority-owned by chairman Vyacheslav Kim - which of course was publicly disclosed by Kaspi at the time.

The report attempts to make Magnum sound shady, explaining that the minority shareholder who sold his 30% stake in it to chairman Vyacheslav Kim had “close ties” to Kazakh ex-president Nazarbayev, who was replaced in 2019; and a close business and personal relationship with Hunter Biden. But if that’s the worst you can find for a Kazakh company, I’d say they’re doing pretty well.

The joint venture is being run by a Ms. Yulia Kim. After mistranslating her patronymic name from the Russian filings, they incorrectly conclude that she is Vyacheslav Kim’s daughter. In reality, she has no relation to the chairman.

7. Portmone, a small Ukrainian payment company bought by Kaspi in 2021, is a shell company tied to Russian mobsters

Kaspi bought Portmone prior to the invasion, principally in order to acquire a Ukrainian payment bank license, as they were planning to expand their business there. Culper writes,

Our review of Ukrainian and Cypriot filings reveals Portmone’s administrator as Pampina Votsi of the infamous Vassiliades & Co – a longstanding front for Russian mobsters and sanctioned oligarchs, including, for example, one oligarch responsible for “weapons trafficking, contract murders, extortion, drug trafficking, and prostitution on an international scale” according his FBI most wanted poster.

First, I think this somewhat exaggerates the reputation of Vassiliades & Co - the Cypriot law firm has indeed been sanctioned for their dealings with Russian oligarchs, but googling the name certainly doesn’t turn up enough to justify ‘infamous’ - mostly just corporate filings.

Second, I think one has to recognise this is just the reality of working in developing markets - you’re always going to be able to find a strenuous connection like this (a tiny acquiree, which used to be administrated by a law firm, which has since been sanctioned). But what does this actually tell us about Kaspi?

Third, they didn’t even acquire it as an operating business - “[Kaspi] did not acquire any substantive processes or activities that would constitute a business.” They were just buying a payments license and some existing customer relationships.

8. Undisclosed related party Alseco, critical to Kaspi bill payments

We believe Kaspi’s transformation from a typical retail bank into Kazakhstan’s largest fintech owes in large part to the Company’s relationship with ALSECO JSC, which Chairman Kim purchased in 2015, yet remains undisclosed in all of Kaspi’s SEC filings.

Kim did buy a 90% stake in Alseco in 2015. This much is true. I haven’t been able to find out whether he still owns that stake, and Culper doesn’t say. However, it’s an enormous exaggeration to say Kaspi’s transformation owes in “large part” to Alseco. The basis for this claim is that Alseco provides utility bill digitalisation and automation services, but Alseco doesn’t even list Kaspi as a client - all they say is that their settlement centre is integrated with all the major banks in Kazakhstan, one of which is Kaspi. And utility bill payments are just one of dozens of services Kaspi offers. This is some incredibly dishonest reporting from Culper Research.

Kaspi’s History with Kairat Satybaldy

Kaspi history is admittedly somewhat tarnished by their history with Kairat Satybaldy, the nephew of ex-president Nazarbayev and until a few years ago, one of Kazakhstan’s most powerful men. While Culper hasn’t said anything on this subject that hadn’t been said many times before, it’s definitely something Kaspi shareholders should be aware of, and I probably didn’t discuss it enough in my original write-up, so I will go over the facts and the accusations here.

Satybaldy was a 30% shareholder in Kaspi until shortly before the IPO

If you want the full story (from a rather skeptical journalist) I’d refer you to this Forbes article, but basically, Satybaldy bought a 30% stake in Kaspi in 2015, then appears to have sold it on the Kazakhstan Stock Exchange (KASE) six weeks before Kaspi announced their intention to IPO on the LSE (having a dictator’s favourite nephew as a major shareholder probably wouldn’t help IPO prospects). There are some other strange details, like Kim transferring a stake worth $500m to Lomtadze for “certain non-cash consideration”, but the big claim is that Satybaldy may have struck an unofficial deal with Kim and Lomtadze whereupon he remains the ‘true’ owner of the shares, and can demand them back at any time.

It’s impossible to know whether this is true - Kaspi and its managers of course vehemently deny it - but in any case, Satybaldy would no longer be able to exercise that claim, as he has since been stripped of all his assets and handed a suspended sentence (which replaced a 6 year sentence). It’s also notable that no record was found of this deal when the government reclaimed his assets, despite Satybaldy keeping extensive paper notes on all his interests.

Satybaldy moved large sums of laundered money through Kaspi

In April 2024, just a few days before I published my initial write-up, Satybaldy went on trial for money laundering (unfortunately, I wasn’t aware of this at the time). He followed a classic recipe - buy several genuine businesses (preferably high-volume ones); mix your own dirty money in with the genuine revenues, giving the appearance the business has suddenly become unusually profitable; transfer money between the various businesses, further complicating the paper trail; withdraw profits from the controlled companies into your personal bank account; and finally, spend like there’s no tomorrow (specifically, buying luxury real estate in Kazakhstan, Dubai and Russia).

It seems that Kaspi’s role only extended so far as being the bank account which Satybaldy deposited money into after laundering, then withdrew money from to make these large purchases, meaning they weren’t directly involved in the criminal activity - a much more direct responsibility sits on the shoulders of whoever Satybaldy’s businesses banked with. However, anti-money laundering regulations are still supposed to catch things like this. I would not be surprised if Kaspi suspected something fishy was going on, and decided not to investigate since it wasn’t their direct responsibility. That’s the reality of places like Kazakhstan (especially under Nazarbayev - less so now) - when one of the most powerful men in the country decides he’s going to keep his laundered funds with you, you have to look the other way. That’s why we can buy Kaspi for 9x earnings, or Halyk for 3.3x.

That being said, based on what I’ve outlined I do think Culper’s claim that Satybaldy “Use[d] the bank like a washing machine” is not quite accurate.

Andrey Derkunskiy was imprisoned and found dead after making allegations against Kim

I was also unaware of this saga when I posted the original write-up and made my personal investment. Unlike most of the rest of the report, this story does concern me.

The source used by Culper is this report by the Open Dialogue Foundation, a European NGO which conducts research on and advocates for human rights in ex-Soviet countries and the EU. ChatGPT, which I find to be a great way to aggregate general sentiment on topics, described their reputation as “complicated” when asked. The Institute for European Integrity (IEI) raises several concerns:

• At least one senior member is under criminal investigation

• A founder was convicted of fraud

• The head of ODF, Lyudmyla Kozlovska, lies about her numerous family ties to businesses in annexed Crimea. Her family financially supports the ODF.

• Activities consistent with reputation laundering through advocacy

Given these issues, I would ideally just go off the merit of the sources they cite, but many of the links are invalid or cannot be accessed as the connection is insecure. Still, I’ll lay out the key parts of the allegation. It states:

1. Between 2003-2005, Kim (who at the time was Kaspi’s controlling shareholder) repurchased 754,400 shares from minority shareholder TOO Fantasiya, paying only a fifth of their ‘actual value’, and later illegally changed the contract and refused to pay the balance of the debt, about $15m.

2. In 2011, Derkunskiy became a legal adviser to Fantasiya’s owner. In 2012, he prepared civil suits against Kim, but he and Kim agreed to settle out of court instead. However, Kim then immediately accused Derkunskiy of extortion, and he was detained by financial police.

3. The court stated Derkunskiy claimed to have sold his debt to ‘Russian gangsters’, and forced Kim to pay him $5.8m; and that Derkunskiy spread information that (a) Kim had illegally acquired his stake in the bank, using a loan from the bank itself and (b) a 30% stake, purportedly part of Kim’s holdings, was truly owned by Satybaldy. The verdict also stated Derkunskiy threatened to file a suit against Kim, which would have led to “serious consequences”, including an audit from the National Bank of Kazakhstan. ODF suggest this is fishy because the NBK audits banks annually anyway.

4. In 2013, he was sentenced to 7 years in prison, and his subsequent appeal was denied in an appellate court in January 2014.

5. The next morning, he was found dead in his cell. Official statements said he committed suicide by hanging.

6. The investigator issued a decision the following day not to institute criminal proceedings, before even receiving the results of the autopsy.

7. Derkunskiy’s cellmate, who was present in the cell during his death, phoned a journalist to report that Derkunskiy had in fact been killed by two other prisoners with the assistance of the prison administration. Shortly after, he recanted his statement. (Note, the journalist is not a particularly reliable source here - he had faked his own kidnapping a year prior, trying to get a meeting with Nazarbayev)

Culper notes that the following year, Satybaldy shows up as a shareholder of Kaspi, and his holding subsequently grows to reach 30.00% - exactly the amount Derkunskiy had claimed. However, this is not as damning as it may seem. First, Satybaldy owned stakes in a great many Kazakh enterprises; second, Kim had already referred to Satybaldy as a “longtime friend and partner”; and third, as soon as a shareholder’s ownership (if bought in public markets) exceeds 30%, they must make a tender offer at no less than market price for the remaining shares. So neither the purchase of a stake nor the eventual amount were very surprising.

Culper’s wording also implies Kim may have been responsible for Derkunskiy’s death, but I don’t think this is the logical conclusion. Derkunskiy himself said “Kim wanted to make me clash with the president’s family and he himself stay out of it” - if indeed this was murder, much more likely that came from Nazarbayev’s family. Murder for hire doesn’t quite seem like Kim’s M.O., from what I can tell. Still, it’s concerning, and I plan to dig a bit deeper into it soon.

The final claim - Kaspi is overvalued regardless

At the end of the report, Culper say that even setting aside all the concerns they’ve raised, Kaspi is “wildly overvalued”. They raise several points to justify this.

1. The economic backdrop: GDP per capita is just $13,137, inflation has run rampant - 8.4% in August 2024, and as high as 21.3% in 2023 - and federal rates over 14%

Low GDP per capita is not a bad thing - it leaves more room for growth in spending. The spike in inflation is not surprising - of course the fallout of Russia’s war affected Kazakhstan more than the US/EU. Moreover, inflation doesn’t really affect Kaspi much - as goods get more expensive, their fees scale proportionally. This is why I don’t consider currency to be a dealbreaker risk - over the long term, inflation tends to match a fall in currency value. In my opinion, investors systematically overestimate country/macro/political risk and underestimate competition risk, and I think Kaspi’s valuation reflects this.

2. Kaspi’s two largest banking peers, Halyk and CenterCredit, trade for 3.2x and 2.3x earnings respectively. Halyk is over twice the size of Kaspi, by assets, and has been building out a Super App of its own which over the past 3 years has grown from 3.3 million to 8.5 million MAUs.

It’s true that Halyk is cheap, and I’m actually looking at it at the moment. But their super-app cannot really be compared to Kaspi’s. Kaspi is the Visa, Amazon, Cash App and so on of Kazakhstan. Halyk’s is a banking app with a couple of neat features tagged on. Despite having 8.5m MAUs, their DAUs are only 2.3m. Their marketplace is miniscule compared to Kaspi’s. It’s completely rational for earnings from QR payment and marketplace commission to receive a higher multiple than those from traditional banking. Kaspi is also growing much faster. Additionally, relatives of Nazarbayev own a controlling stake in Halyk.

And CenterCredit only trades on the KASE (as well as having worse management, higher credit risk, no super-app etc. etc.), so that’s hardly comparable.

3. Kaspi’s market cap per user and price to sales are higher than other super-apps

These are meaningless metrics. If Kaspi is at a higher valuation per user, but a lower price-to-earnings, that just means they’re getting way more out of every user. There is no reason to believe that revenue or earnings per user should be mean reverting between all super-apps, which is what would be required to make this a meaningful metric.

Price to sales is equally as dumb - using P/S instead of (or even in addition to) P/E implies an equivalent amount of earnings are worth less if they’re earned at a higher margin. That’s an absurd notion. Similar to the above, margins would have to be mean-reverting for P/S to have utility here.

What Culper Didn’t Find

Timothy Liu made a great point on X - given how deep they dug into the corporate filings of affiliates, Russian telegram groups and forums, and central bank data, some assurance can be gained from the things they didn’t find:

• Any indication of accounting problems

• Damning quotes from former employees about bad things the company is doing - often this is the smoking gun in good short reports

• Problems with loan loss reserves and write-offs

• Evidence of any business lines performing substantially below expectations

It’s not a promise that none of these things exist, but Culper are clearly motivated to find them if they do.

Final Thoughts

On Short Sellers

Although my tone has been somewhat withering throughout this rebuttal, I don’t have anything against short sellers in general, or even activist short sellers. Firms like Muddy Waters and Hindenburg go far deeper than just about any longs do, and I admire them greatly for that. Even Culper has uncovered a couple relevant things that I was not aware of beforehand - for that I have give them credit.

Incentives in activist short selling are also generally well-aligned. People worry that shorts publish reports just to get the stock to dump, then immediately close, but that only really works if you have a strong reputation already, and you can only really build up a strong reputation by putting out genuinely insightful reports - by being right. It wouldn’t make much sense in the long term for Hindenburg to start throwing baseless accusations about, just to profit from the following 20% drop.

In that context, it’s a bit surprising that Culper would publish something filled with so much fearmongering nonsense. Their track record (calculations here) is actually pretty good - their shorts have averaged a -21% return over 2.70 years, an underperformance versus SPX averaging almost 25% per year. If you look at just their shorts in 2020, 2021 and 2022, they’re down, on average, 85% since the publish date, with only one down less than 50%. But it seems as if something changed in 2023, because the average return-to-date of the stocks they published on in 2023 and 2024 is +17%. I wonder if they decided they had built up enough of a reputation that they can switch to short-term trading on fearmongering. Judging by how Kaspi’s share price has responded, that methodology probably works quite well if you can target businesses in badly understood emerging markets, where a high percentage of their float is held by western investors.

On Kaspi

To summarise:

• I do not believe Kaspi currently face a meaningful risk of secondary sanctions or delisting.

• Their related party transactions discussed do not give me reason to doubt Lomtadze’s integrity.

• While it is subject to interpretation, I do think “no exposure to Russia” is an exaggeration.

• I did not have much of an opinion either way on Kim before, but I will be looking more into the accusations against him. Lomtadze speaks very highly of him, making out that Kim was a large part of his reason for joining - if Kim turns out to be much worse than I thought, it would cast doubt for me on Lomtadze.

• Despite this, I think the recent stock price move was an overreaction, and Kaspi is very attractive at $103.

In connection with that last point, I will be updating the weights in the VGV Portfolio - which currently stand at 32.4% for KSPI, 30.4% for AAF and 37.2% for HIFS, to 50%, 25% and 25%, at the opening price on Monday.

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