Russia initiative to woo private equity: source

By @ibtimes on

International private equity firms may be tempted to Russia by two potential initiatives -- a fund and a committee to look at investment in the country, a source briefed on the situation said on Sunday.

Private equity firms have been cautious about investing in Russia, nervous about political risk and the country's energy-focused economy.

The Financial Times first reported news of the initiatives, saying that Russia is setting up a $10 billion fund to co-invest with international private equity firms.

The source who spoke to Reuters confirmed the report that the fund could be about $10 billion in size, and there would likely be a co-investment opportunity, although gave no further details.

Russia is also creating a committee to advise Dmitry Medvedev, Russia's president, on transforming Moscow into an international financial center, the Financial Times said.

The paper said that members will include Goldman Sachs chief executive Lloyd Blankfein, Blackstone Group founder Steve Schwarzman, JPMorgan Chase boss Jamie Dimon and Bank of America CEO Brian Moynihan, as well as representatives from BNP Paribas and UniCredit among others.

A committee is one of the initiatives being considered, the source who spoke to Reuters said.

The Financial Times also reported that the Russian government has asked Goldman Sachs informally to guide the project and has approached Apollo Management , Blackstone and Carlyle , among others.

Carlyle was approached about the initiative but was not interested, a second source familiar with the matter told Reuters.

The FT said a spokesman for Russia's first deputy prime minister, Igor Shuvalov, confirmed that talks on creating such a fund were under way but declined to comment on the details.

There has been wariness among private equity firms about investing in Russia. Carlyle has been vocal about its concern about investing in the country.

Russia has not really diversified out of natural resources, it is basically a natural resource economy, Carlyle's co-founder David Rubenstein said at a panel discussion held at a private equity event in September. Rubenstein also said at the time that there has been, to date, few profits made by Western private equity firms in the country.

The perception is that the best deals get to go to the oligarchs, and because the oligarchs have a fair amount of money, there isn't so much need for Western private equity capital, therefore there haven't been that many great investment success stories, Rubenstein said in September.

Rubenstein repeated that sentiment at a conference in Berlin a week ago, saying that Russia has not proven to be a place where western private equity investors have realized profits commensurate to the risk they have to take.

Others have a more optimistic view about the country.

I don't know if Russia is the best opportunity among the emerging markets ... but what I am sure about is that it is the most misunderstood emerging market and it is also the most underrated, said Michael Calvey, Moscow-based co-managing partner at Baring Vostok Capital Partners in Berlin last week.

Russia has been a difficult market for global private equity firms, said Calvey, as it doesn't have the same efficiency, intermediation and services that exist in countries in Asia.

(Reporting by Megan Davies in New York and Karolina Tagaris in London; Editing by Anshuman Daga)

Join the Discussion