RDIF Adds Italy’s FSI to Diverse Array of Co-Investment Funds

Sovereign Wealth Fund Institute, 28.11.2013

The Russian Direct Investment Fund (RDIF) and the Fundo Strategico Italiano (FSI) signed an agreement on November 26 to contribute roughly US$1.35 billion to a strategic investment vehicle designed to promote trade and foreign direct investment in the two countries. According to details about the agreement, each entity will contribute €500 million to the vehicle. The agreement was signed in the presence of Russian President Vladimir Putin and Italy’s Prime Minister Enrico Letta in Trieste.

Maurizio Tamagnini, CEO of FSI, seeks investments in “food, engineering, machinery and other technology-based industries,” he said in a statement.

The RDIF, since its inception two years ago, has been very active and successful in partnering with other sovereign wealth funds and national funds for joint investment purposes. Its first major partner was the China Investment Corporation (CIC) in October of 2011, creating a US$2 billion dollar vehicle set to be 70% focused on Russia with the other 30% going toward Chinese investments. The joint vehicle continues to seek funding from Asian investors with hopes to build the fund out to US$4 billion.

The boom in investment partners is not likely to end anytime soon.

There were 2 notable deals in 2012. The first was made with the Kuwait Investment Authority (KIA). The KIA agreed to a US$500 million co-investment deal. The result is that the KIA will co-invest in all RDIF transactions. Bader Mohammed Al-Saad, Chief Executive Officer and Managing Director, KIA, was named as an international advisor to the RDIF in 2011.

Then in December, the State Bank of India signed a memorandum of understanding (MoU) to perpetuate trade and cooperation with Russia. Each entity agreed to contribute US$1 billion each “or facilitate investment in projects and companies with a Russia-India angle, as well as initiatives associated with privatization, globalization or mutual trade,” the RDIF said.

This past year, however, has witnessed the majority of joint deals and MoUs between large, public investors.

In February the RDIF and Caisse des Depots et Consignations (CDC) signed an broad MoU calling for “further economic cooperation and mutual trade” between the two counties the CDC said in a statement. A €1 billion joint fund was launched in November.
In April, an agreement was made with the Japan Bank for International Cooperation (JBIC). Each entity will contribute up to US$500 million, according to the agreement.

Two months later, the Abu Dhabi-based Mubadala Development Company penned an accord with the RDIF that each sovereign wealth fund would contribute up to US$1 billion each to a fund made to invest in projects on a deal by deal basis with some money reserved to be automatically co-invested in all of RDIF’s deals. Khaldoon Al Mubarak, Mubadala’s Chief Executive Officer, was named to RDIF’s international advisory board a month later. Al Mubarak also sits on the Abu Dhabi Executive Council, which is chaired by HH Sheikh Mohammed bin Zayed Al Nahyan, the director of the Abu Dhabi Investment Authority (ADIA). In September, Al Nahyan paid a visit to Russia, the result of which was a US$5 billion commitment from the Abu Dhabi department of finance to help develop and update outdated infrastructure projects. Kirill Dmitriev, CEO of the RDIF, predicts the funds will be fully invested in 5 – 7 years.

Lastly, just before the Italian fund was formed, in early November, the Korea Investment Corporation (KIC) penned a deal to establish a US$500 million investment platform. Chong-Suk Choi, Chairman and Chief Executive Officer of the KIC also sits on the RDIF’s international advisory panel.

The boom in investment partners is not likely to end anytime soon. Ahmad Al-Sayed, CEO of the Qatar Investment Authority (QIA), was also added as an advisory board member in July of this year leading certain analysts to suspect a deal with the QIA could be on the horizon. A US$500 million equity stake taken by Qatar Holdings LLC, a wholly owned subsidiary of the QIA, in Russia’s JSC VTB Bank in May – Qatar’s first Russian investment – suggests that those analysts are correct and that Qatar is warming to Russian investments.