Russia Fund Seeks to Close Deals With U.S. Firms in 2012

Bloomberg, 01.05.2012

Russia’s sovereign-wealth fund, whose advisers include Blackstone Group LP (BX)’s Stephen Schwarzman, may complete deals with U.S. buyout firms valued at more than $1 billion each this year, its chief executive officer said.


The Russian Direct Investment Fund is working with American investors on acquiring minority stakes in Russian companies, CEO Kirill Dmitriev said yesterday in an interview at the Milken Institute Global Conference. The Moscow-based fund, which got $2 billion from the Kremlin in December, seeks returns of at least 5 percent to 7 percent greater than what investors could obtain in U.S. public markets, he said.


Dmitriev, 37, educated at Stanford University and Harvard Business School, is pitching Western investors on Russia’s changing demographics and stabilizing political environment. He said he wants to close one or two investment deals this year with U.S. private-equity firms, which he declined to name.


“It’s an uphill education process,” he said. “Russia has changed a lot in the last 20 years.”


U.S. investors are wary of systemic corruption and interference from the Kremlin, billionaire property investor Sam Zell said yesterday during a panel discussion at the conference, held in Beverly Hills, California. There aren’t credible avenues for resolving business disputes with Russian authorities, he said.


“What are you going to do, see a Russian judge?” Zell said.

Growing Middle Class


The middle class in Russia has tripled in the last five years to more than 10 million households, defined as having about $10,000 (294,000 rubles) in annual income, Dmitriev said.


Dmitriev also is setting up a $4 billion joint investment fund with China Investment Corp., the country’s sovereign-wealth fund, that is likely to target transactions in Russian forestry, logistics and agriculture, he said.


That fund will have $1 billion in capital from each country and is seeking a further $2 billion from other investors, according to an April 29 statement. As much as 70 percent will be invested in Russia and the Commonwealth of Independent States.


Russia’s government has committed to provide $2 billion to the Russian Direct Investment Fund annually for five years, Dmitriev said in the interview. The fund has a staff of 60, including 25 investment professionals, which is expected to grow to 80 by the end of 2012. Its success ultimately rests on delivering profits for investors, he said.


“Only by showing good returns will people invest in Russia,” Dmitriev said.