Natalie Jaresko: Since I was a child, I was taught that there is real evil and that it must be fought

Growing up as a child of immigrants who fled World War Two, who fled communism, fled Nazism, and arrived in the United States and had an opportunity in the United States to rebuild their lives from zero, from scratch, helped me to believe in the market system. It gave people who had entrepreneurial spirit and who wanted to work hard the opportunity to succeed. And I've believed in democracy. I've believed that the combination of a democracy and a market economy was most efficient in providing individuals the greatest amount of opportunity to find themselves, to develop themselves, to fulfill their dreams. So, as I grew up looking at those models and experiencing how the United States had given my family so many opportunities.  Then when the wall came down in Eastern Europe, and the Soviet Union collapsed, for me it was an opportunity to help in that transition from a state-run economy to a market-run economy and from communism to democracy. 

My parents come from different parts of Ukraine. My father comes from Poltava, so his family lived under Stalin and through the Holodomor – the famine, and had a very difficult life, very very difficult. My mother’s mother was taken as an ostarbeiter to Germany, she was a forced German laborer. So they had very different experiences during the war. They all ended up in displaced person camps in Germany. But I learned from the very beginning that there is true evil in the world and you have to fight that evil. You have to side with the good. Unfortunately, we’re living through that all over again now, but we have to learn lessons from it.

My grandparents only spoke Ukrainian, so we grew up very respectful of our culture, our tradition, our history. We lived in the suburbs outside of the city, but we went to Ukrainian school and to church in the Ukrainian village of Chicago. I spent my Saturdays learning Ukrainian language, culture, literature, and history. With your eyes closed, you had to be able to go through the rivers and tributaries of Ukraine and the mountains and every major town. I’m very proud of my family and how they made the adjustment, the transition.  

From my grandmothers and family overall it was a deep belief in faith, God, and church. Number two was hard work. They worked hard physical labor when they came to the United States. You couldn’t, and you shouldn’t expect anything free. You should work hard. So, a belief in God, a belief in yourself – that is probably the most important anchor they gave me and I think that I’ve tried to give that to my children. 

In order to succeed, whether it’s in business or whether you’re raising capital for a charity, you need to be able to understand finance. You need to be able to understand what costs are involved, how to measure potential revenues, and what types of risks there are. And it's also important to family finances, the very core of protecting and developing your family. Understanding the basic elements of insurance, savings, how to invest so you have something in case of an emergency. All that is very critical to every woman and every man. Especially for women because traditionally men took care of the money.  It gives you a sense of comfort, security, and independence to be able to make other choices. I grew up in a traditional family as well, and my father really was the one who maintained all financial responsibility and control And what I learned from that as a woman was to have full understanding and to be able to control independently. It doesn’t mean I have to do it alone, but I need to understand it, I need to engage in it, I need to explore it because it will give me security, safety and the opportunity to make other choices as you go forward, to grow, to have other options in life. 

I raised them in Ukraine. My older daughter finished high school there, but then she went to Yale University. She’s worked for a couple of years in the private sector, and now she’s going to Oxford for her Master’s. And my younger daughter went with me to Puerto Rico. So, my younger daughter lived in Ukraine through eighth grade and then completed high school in Puerto Rico and just entered Yale University as a freshman. My children make me happy. And I am very deeply Ukrainian in my heart and soul -- in the sense that I am happy when Ukraine is succeeding, when Ukraine is prevailing, and I am in pain when Ukraine is being violated and Ukrainians are being murdered. I raised my daughters to honor Ukrainian traditions, where they come from, to understand and to honor their roots, to practice their traditions. I think I raised my daughters to respect honesty and hard work, and I think I was a role model for them in that. I tried to model living a life of purpose, mission and service. I tried to instill in them key values, service, purpose, honesty, hard work, that I think they’ve adopted themselves. We continue to try to spend as much time together as possible. Family time is important. I’m very proud of my daughters. They’re very independent, intelligent, kind, young women.

I started with what today would be called a social impact investment fund, $150 million Western NIS Enterprise Fund. Because back in the mid-90s, ’95 and ’96, no private institutional capital was prepared to invest in Ukraine. It was too risky and unknown. As a market, there wasn’t enough confidence yet that this type of industry (private equity/venture capital) could be established. The US Government did this purposefully to kick-start, jump-start, private equity in different markets. Several were created before the Soviet Union collapsed in Eastern Europe and some of them did quite well. If what was stopping investors from coming to the market was lack of knowledge, fear, or risk, creating a successful track record based on the social impact investment fund would give them the confidence to step forward later and invest without government support. And that’s what we did. We created Horizon Capital and raised private capital once we had the successful track record to use and show. By then investors could credibly understand that positive returns were possible and that the risk reward ratio was beneficial.

Horizon Capital is indeed a market leader in the region, and it has existed since 2006, so it’s now 16 years old. It’s already raised 3 private funds. They’ve just held a successful first close on a fourth fund. I was the Managing Partner through 2014 and I think there were a couple of key lessons while I was there. One was to build the best possible investment team and learn to invest in young people, to invest in people who understood business, could develop partnerships with entrepreneurs, who were able to seek out other resources that could be value added into the companies. They knew their industry and they knew the resources in the industry. So, number one would be building a very competent team that can excel. Number two was having a common investment philosophy amongst the partners. We had a very clear investment philosophy and we didn’t really veer from it. Transparency and avoiding corruption at all costs was a very important part of that very commonly held investment philosophy that we had.

The third thing is to seek out entrepreneurs who share that investment policy. It’s not enough for us at Horizon Capital to have shared that philosophy, but our portfolio partners had to share it. Identifying those entrepreneurs who want to build a transparent, profitable, market-leading business, who want to be audited, who want to exhibit corporate social responsibility in their communities, is really important from the very beginning, from the get-go. So, common investment philosophy. 

We also learned over time, because of the cyclical nature of the economy and because the currency continues to go through devaluations when we were investing US dollars, that you need to have a good mix of export-related businesses. Managing currency risk was a key part of building a top performing portfolio. I think those were the key lessons.  

We went through a whole learning process over the years, which has served Horizon Capital well.  One story is of an construction industry entrepreneur that we invested in in the early to mid-nineties with the first fund, and then we backed him in a second business in the Horizon Capital fund. First of all, there are excellent, high-quality clays in Ukraine. I don’t know if people will understand, but clay is often exported in bulk to Italy for Italian ceramics. It’s a very high-quality clay. We were manufacturing bricks, and as the construction industry was growing and growing, it was a very successful business. He was a gentleman, an entrepreneur, a real team leader, up in Sumy oblast, in the north-east towards the Russian border, and we successfully built that business, and we sold it together with him. And he decided to build another business.  And we wanted to back a leader, a winner.   Another one of our funds backed him a second time. And what I’d like to say about this gentleman is, I was in touch with him last week, Sumy is one of the hardest hit regions of the country, not under occupation but constantly bombed. And he had to take a team and move farther west for safety, temporarily but he’s back in Sumy. He’s operating his facility, he knows that gas prices are going to go up, gas is a critical component of making bricks, and he knows that gas may be in short supply later this winter, so he’s manufacturing as much as he can because he knows that Ukraine has to rebuild. And bricks and other clay-related products are going to be critical for that rebuilding. And so he’s back there committed as ever to manufacturing and to building that business. I think that is a sign of Ukraine’s entrepreneurial spirit. And he’s a serial entrepreneur.

I think leaders are those who can consistently deliver the returns the investors are looking for. A successful investor in emerging markets is one that can prove the consistency of returns through different investment cycles, ups and downs, because these emerging markets are not particularly stable, they’re not developed markets with full access to the entire lifecycle of capital. So, I think when you’re looking for an investor to back in an emerging market like Ukraine, you want to see someone who’s been consistent over a number of years. You want to see someone who’s been able to maintain their team, and their team is incentivized to continue because that experience, that depth of knowledge of the network and the people in the communities is really critical to building a pipeline. You want consistent delivery. In terms of a leader, it is someone who inspires, inspires both their team, but also inspires their partners to be better and is equally inspired by their partners. And I believe a leader shows a certain level of humility. An ability to keep learning. To know that you don’t know everything. That you have to learn just like everyone else has to learn. 

You know, it’s a single challenge in all three. And the challenge is that you succeed when you work with like-minded people, with people who share your values and your objectives. It is possible to succeed when you’re surrounded with people who do not, but it’s very hard, and it takes much longer, and you don’t accomplish as much as you need to, want to, or otherwise could. When you’re in the government as I was in the government in Ukraine in 2014-16, which had shared values, objectives of moving the country forward rapidly, implementing the reforms, getting it done and doing what’s best. It's a joy to work with people who are committing themselves 24-7 to those same values and objectives. At the same time, when you work, for example like my work in Puerto Rico, the government was not as anxious to reform, and the legislature really didn’t want to reform. And although we accomplished a great deal, it was always like pushing a rock up a hill. This is what I have been learned all of my life: it’s just a lot more efficient, a lot more enjoyable and you can be much more successful when you are working with a team that has the same goals, values and objectives.

Puerto Rico has a unique political status. It is a territory of the United States. So, it is managed through the constitution by the United States Congress. The United States Congress has direct control and the United States Congress wrote legislation to resolve Puerto Rico’s bankruptcy.   My goal there was to restructure the municipal debt. Where I’d already had experience restructuring Ukraine’s sovereign debt, now I was restructuring the 72 billion of municipal-level debt of the United States. This was the largest municipal bankruptcy in the history of the United States. One part of my responsibility was restructuring the debt, to achieve more sustainable levels of debt, and the second part was introducing financial practices, transparency and budgeting, detail in budgeting, balanced budgets, debt management policy, such that the government going forward after the debt was restructured would be more financially responsible and more sustainable and not return to insolvency.

Ukraine went through the Revolution of Dignity, and when the revolution ended in February of 2014, the former president fled the country, Yanukovych, and Russia invaded Crimea. We had a temporary government, and the economy was struggling as a result of the previous regime’s mismanagement. Yanukovych left no money in the treasury, he left no military to defend the country, and he left a banking system that was poorly regulated, had a lot of vested interests, oligarchs, and abuse of the system. Slowly from February to the summer that year, the economy started to collapse. We went through a series of elections to renew democracy across all institutions. We needed to have a democratically elected government. Our new president, Petro Poroshenko, formed a new government. A coalition government. And a recruiter came to my office saying: “We are looking for young, capable, experienced, committed professionals to come to government. We want to do it differently this time. Would you consider it?” And I said, “Sure, I would consider it, but that’s never been done.” 

I had been working and living in Ukraine for twenty-some years by that time and I was not the only foreigner that was invited. I had contacts with many G7 governments because of my investments, prior role in the United States government, negotiations with capital providers from my private equity experience, so I offered them experience that they really valued in trying to take the next step and pull the Ukrainian economy out of the fiscal hole we inherited. They gave me Ukrainian citizenship, and I became Minister of Finance on December 2nd, just as we were doing a budget for the next year. Again, there was no money in the treasury to pay the bills, the banking system collapsed and the currency was collapsing. It was an extraordinarily demanding time for the Ukrainian economy. From a patriotism standpoint, I’ve always wanted Ukraine to succeed more than anything. I arrived there in 1992 with the desire to help Ukraine through the transition from communism to democracy. Now twenty years later, Russia had illegally invaded and occupied Ukraine.  Ukraine was at war. I felt a duty to serve, I felt I had something to offer and contribute, and I also felt, as a private-equity professional, if the economy collapsed, our funds collapsed. To be honest, sitting back and just watching was not an option. And so, I became Minister of Finance.

It's been more than 200 days of this horrific war. The economy is, from the positive side, more resilient than anyone expected. The banking system is functional, we have fought off cyberattacks, and we are living in a very digital age. The challenge is that so much of the territory is being bombed, interrupting life and business.  Outside Ukraine people believe that it’s only the east and the south being hit, but that’s not the case. Russia bombs the whole country practically every night. 

Russia has made a direct effort to destroy two of the most important sectors of the economy – the energy sector and the agricultural sector. They’ve blocked the ports to deny Ukraine the ability to export. Ukraine is the number 4 grain exporter in the world and its number 1 in sunflower oil, 4th or 5th in wheat and corn, soy, taken together. Ukraine feeds some 400 million people a year outside its borders. They’ve not only blocked the ports, they also have bombed grain silos, they have set fields on fire, mined the land, and they have killed, murdered, some of the agricultural sector leaders purposefully. But Ukrainians respond with courage and resiliency. Ukrainians have still farmed this year, under the threat of bombs, they still farm. And they have tried to export through all different routes, through the border by rail, through the Danube by river, and as much as they can through some of the Black Sea ports. 

Energy is blocked now. They are shutting off the gas. They hold the largest nuclear reactor plants in the Zaporizhzhya region hostage, bombing the area constantly, which disables it from providing electricity to a substantial part of the country. They have completely bombed different heating facilities. And most recently, they are targeting the electricity stations throughout the country.  So, it is a clear strategy of economic ruin. It is a very difficult time. The economy is probably going to decline some 30-40 percent this year. The government has established programs to try and support small and medium-sized business, to support agriculture, to support businesses moving to the “safer” part of the country. But I think one of the things that we must keep in mind through all this is the enormous amount of displaced people and refugees. 6 to 7 million people have left the country to seek safety. Some 6 additional million are internally displaced, meaning with no home, with no things, within Ukraine, and then some 2 million have been forcibly deported to Russia, including over 300 thousand children. Europe has been wonderful in welcoming refugees, but people like me, we want to make sure that we’re rebuilding the schools and the communities so they can come back home. We need to rebuild the whole infrastructure. As you know, I’m a mother. You want your child to be able to go to school. You want to be able to provide food. So, we need to rebuild those communities where we can as quickly as we can so that people can come home. 

I think that Ukraine has accelerated its development in so many positive ways. For one, the unity of the country. Ukraine, like many Central-Eastern European countries, was part of different empires.  But now it doesn’t matter what language you speak; it doesn’t matter what religion you practice. Being Ukrainian, creation of a modern state – it has been accelerated massively. The unity of the country is very positive. The second major impact will be the example of courage.  Ukrainians are very brave people who have proven their willingness to defend their homeland. They’ve demonstrated this not only to foreigners, but more importantly to themselves. They’ve given Ukrainian children  an example to emulate and a belief that they are strong, that they can overcome, that their culture, their identify, their homeland is worth fighting for. Think of the number of volunteers – thousands and thousands of people have volunteered to defend their country. You do that because you understand the value of it. So, I think that Ukraine will prevail, and will prosper. It’s unfortunately an extraordinarily horrifying human cost, and a lot of devastation, but they will prevail and I think that they will accelerate their development, both as a more unified country, more clearly on the EU-accession path. And the current battles you’re seeing, Ukraine pushing forward in the east and in the south, convinced the military world, NATO, of the value and courage of Ukrainian soldiers, Ukrainian strategy, Ukrainian capability. So, I think in many ways, what you’re seeing is an accelerant of Ukraine’s progress. 

And finally what I’ll say is, when this war is over, and it will end, the only question is when and I hope sooner and not later, the rebuilding of Ukraine will attract a substantial amount of capital, hopefully confiscated Russian assets, but also private capital, governmental capital, and that will bring new investment, fresh new ideas to marry to Ukraine’s courage, their strategy, their IT community, which has been extraordinarily successful during this entire war and at the forefront of the war in many ways. What you’re going to see in this is an accelerated development of Ukraine, it will be rapid.