Russia unveils $10bn direct investment fund

Agence France Presse, 17.06.2011

Russia on Friday unveiled a $10 billion sovereign investment fund meant to attract more investors and foreign expertise to diversify and modernise the economy.

The fund, the brain child of President Dmitry Medvedev, aims to combine budget money with private capital to co-invest in various sectors across Russia.

“We decided that while the Russian economy is very attractive to investors, they don’t decide in favour of Russia due to risks and an unfavourable investment climate,” said Sergey Belyaev, head of the economic development ministry’s investment department.

“Creating this fund is a way of dividing the risks and can be a financial guarantee that the investor will make money here,” he told a briefing to announce the launch of Russia’s Direct Investment Fund.

Although the mechanism and terms are not finalised, the government is promising to put up $2 billion annually for the next five years.

Potential co-investors should have a market capitalisation or annual sales of at least $1 billion, according to a statement distributed Friday. They can invest directly into projects, with the fund’s participation not surpassing 49 percent.

The fund is being set up as a subsidiary of the Vnesheconombank state development bank, although the state will aim to withdraw from the projects’ capital within five to 10 years, officials said.

The fund’s transparency will be ensured by a supervisory board that “will consist of some Russians and some international (figures) ... it will be about the same number (of each),” fund director Kirill Dmitriyev said.

“If we can’t make it transparent, easy to understand and clean, it will not work,” he said.

Investment bankers welcomed the project’s co-investment idea while warning it would have to tackle a negative perception of Russia among new foreign investors who fear the country’s record of corruption and bureaucracy.

British Trade Minister Lord Green called it a “good concept” but said it should not be “an alternative to addressing wider issues of governance, transparency, democracy” and other issues.

Blackstone Group chief executive Stephen Schwarzman said the fund “is fairly attractive (when) compared with just showing up and making your way in a highly complex environment.”

Medvedev on Friday listed the fund as a key to Russia’s future and promised future growth irrespective of who heads the country — a reference to a 2012 presidential election that may be contested by Prime Minister Vladimir Putin.

The economic development ministry’s Belyaev also dismissed concerns that uncertainty about Russia’s leadership may be scaring off investors.

“Investors need financial guarantees as much as political and here the state is also investing money,” he said.