Marc Rich was many things, not least one of the FBI’s most wanted people for 20 years until his controversial pardon from President Bill Clinton on his last day in office in 2001. Yet, above all Marc Rich was a genius trader. And that's how I met him. Rich's impact and legacy on global commodity markets should not be underestimated. He died late last month, in Switzerland, aged 78.
Marc Rich pioneered the modern oil trading market. At a time when the big oil companies, know as the seven sisters controlled oil trading through long term contracts, Rich invented spot trading in oil. Quite simply, rather than buying now and paying later under a futures contract, he bought and sold oil for same day settlement, often on the high seas. That is to say, he would buy oil already in transit, and take over the delivery. He routinely made ships “disappear” through offshore trading zones making the real origin of the oil, such as Iran, very hard to track. It did not matter to him who the counterparties were, as long as they could perform. This effectively broke the stranglehold that big oil had over the global price-making ability of the oil market. It was highly risky, but he was right more often than wrong on price direction and, as a trader, that is all that matters.
He was reported to have worked for a number of intelligence agencies, such as the CIA, MI6, KGB and Mossad. Yet it remains unclear when reading between the lines if he did work for any of them (more likely it seems they in fact worked for him at some time or another!). Such was his ability to predict market movements in base metals, grains and oil that he came to dominate most markets he entered. It was not through luck that this happened, but more design. You only have to look at one of his enduring legacies, the commodities trading giant Glencore, which he founded, whose name is derived from his big thinking: GLobal ENergy and COmmodity REsources.
There were no markets which were off limits, and it was his trading with embargoed countries such as Iran, Cuba and South Africa which earned him a spot on the FBI’s most wanted list. Originally from Belgium, he was educated and lived in the US, before fleeing to Switzerland in 1982 when a life sentence for tax evasion seemed likely due to his trading excesses. For Rich, it was simple. Stay and go to jail, or run and remain 'free'. He was a trader after all, and he chose 'free' over jail.
Opening up offices in Zug, Switzerland, his influence on global commodity markets only grew, especially when the collapse of the Soviet Union came. He was one of the first into the Russian market. He did joint ventures with Russian port owners and operators, ensuring safe passage of commodities out of Russia onto the global commodities market, which he, of course, traded.
It was in Russia, in June 2000 that I first became aware of Marc Rich. The Russian market was considered toxic by foreign investors having defaulted on government debt two years earlier. I was working in the Russian capital markets trading Russian listed equities out of Moscow. Quite new in my role, my brief was simple; bring liquidity back to Moscow through trading equities with international clients. So when one of the owners of the bank for whom I worked asked me to cover his account, which he had never traded with, while he was on holidays, I did. The account was Marc Rich Trading. Just another name to me. So I called them, and as luck would have it, another Australian answered my call. He ran Marc Rich Trading operations in Zug and, of course, we traded, there and then, in three Russian listed stocks.
For my part, I was pretty happy. I was bringing liquidity back to the bank, and the market. In fact, in those three trades I had just posted more than 50-times the daily market volume as reported on the RTS (Russian Trading System). Our desk was happy, and the bosses wanted me to arrange for them to meet with Rich in Zug. I made the appointment, got on a plane with the owner of the bank and we flew to meet Rich.
The meeting went badly. The bank bosses thought he would be a cash cow for them, and tried to sell him something he had no interest in buying. I almost lost my job for pointing this out to my bosses after the meeting. His point was clear. All markets have value, especially when no one is looking at them, like Russian equities at the time. He was right. The Russian equity markets went up year on year for the next eight years, becoming one of the fastest and most profitable markets in the world. Rich played with us that day, only focusing at the very end to deliver his message. “Oils and metals are the big playgrounds. Call me if you want to play.”
His legacy is the trading structure of today’s commodity markets. Dominated by a small group of very powerful trading houses, two of which he founded, Glencore and Trafigura. Yet they too might have a limited life span. They operate through an opaque network of contacts, the key being network. The difference between when these markets were created and today, is that information is much more transparent, and secrets are much harder to keep. Bank funding will make way for direct investment into the commodities markets, and transparency rather than secrecy will be where the value is.
The only thing that has not changed is sanctions, even though he proved beyond doubt that they do not work. They simply misprice assets and create opportunities for swashbuckling, risk taking, genius traders like Marc Rich.
Sam Barden is a director of SBI Markets, an international commodity trading and advisory company which advises governments and private firms on deal financing and facilitation.