Russia’s Direct Investment Fund To Lure Investors?
At a meeting at the end of May, Vladimir Putin shook off his tough man image and embraced his inner businessman, in an attempt to promote the benefits of investing in Russia, a job usually reserved for i-pad touting ‘reformer’ Dmitry Medvedev. The lodestar of his efforts: the new $10 billion state-backed Russia Direct Investment Fund, designed to enliven the interest of suspicious foreign investors by yoking them to the Kremlin for protection. Reuters has a in-depth analysis of whether the Prime Minister’s efforts will pay off:
Experts say the fund, with its inbuilt political insurance, is designed to meet their needs. “It’s a very innovative and creative way to tap into long-term investors,” said Ashby Monk, co-director of Oxford University’s analytical Sovereign Wealth Fund Project. “If I were looking for a partner for private equity investments in Russia, the Kremlin would be top of my list.”
TheRussian Direct Investment Fund (RDIF) will be launched at the StPetersburg International Economic Forum — Russia’s answer to Davos— this week. The product of over a year of soundings with foreigninvestors, the fund will receive $2 billion in state cash each year forfive years.
Its structure mimicsthe private equity model: it would make direct investments of $50-$500million in firms geared to the growth of Russia’s middle class, insectors like healthcare, IT or infrastructure. Foreign investors wouldtake the lead, and the fund would restrict itself to a minority role.
“Wecame up with something that is very unique, and I think very positive,”says Dmitriev, a 36-year-old Stanford and Harvard alumnus who made hisname in Moscow with Delta Private Equity Partners, a Russia-focused fundthat he co-ran.
The RDIF can onlyinvest if foreign investors put up at least a matching sum. That willalign its interests with its partners’ and put a focus on returns whichhas been lacking in previous initiatives such as special economic zonesand Rusnano, a state nanotechnology investment vehicle.
“Ifwe can show to foreign investors that they can consistently make areasonable return in Russia, they will put in a dollar now, and in threeor four years they will put in $10,” Dmitriev told Reuters.
Hereckons the RDIF could attract as much as $50 billion in co-investmentover the next 5-7 years. That capital is sorely needed in Russia, whereinvestment is only around 20 percent of GDP — less than half China’slevel.
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