Russia's Putin pitches Adia, CIC, KIA and KIC

Four sovereign wealth funds held direct talks in Moscow over their participation in a government-backed Russia investment fund, AsianInvestor has learned.
Russia's Putin pitches Adia, CIC, KIA and KIC

Two weeks ago, four Asian sovereign wealth funds held top-level meetings in Moscow at the behest of Russian Federation president Vladimir Putin, according to a person who attended on behalf of one of the SWFs.

The Abu Dhabi Investment Authority, China Investment Corporation, Kuwait Investment Authority and Korea Investment Corporation reportedly met Putin and Dmitriev Vladimir Alexandrovich, chairman of Vnesheconombank (VEB), on May 18.

VEB is informally known as the Russian Development Bank and manages state debts, pension funds and government economic plans. Among its initiatives is the proposed Russia Direct Investment Fund (RDIF), a vehicle the Russians hope will entice investments from Asian SWFs.

The Russian government has pledged to inject an initial $10 billion into the fund. SWFs say they are considering co-investment opportunities in Russian companies and infrastructure projects.

The Russian press has reported that VEB will establish a subsidiary with 100% capital investment to manage the fund, with Putin directly engaged in both soliciting overseas funds as well as selecting investment projects.

In March, CIC chief executive Lou Jiwei told the Chinese media that he was considering the fund as a conduit for investment, as well as privatisation.

KIC president Chin Young-wook has also reportedly endorsed investing in the RDIF as a way to access long-term opportunities backed by the government, not just for KIC’s portfolio, but for Korean corporations.

One SWF official tells AsianInvestor that the RDIF would likely encompass most sectors except for energy and resources, as the Russian government doesn’t need capital invested there. The RDIF is expected to display typical private-equity fund dynamics, with an investment horizon of five to seven years, and internal rates of return of 15% or more.

“The RDIF will probably be involved with local infrastructure [projects] and IPOs of Russian government-owned companies,” says the source.

Neither the RDIF nor the Russian government is offering any guarantee. SWF investments are meant to be strictly commercial. However, Moscow may provide debt financing to investee companies on favourable terms.

“We perceive there will be no guarantee, but we expect there will be strong support on many areas by the Russian government,” says the SWF officer.

It's not clear yet to what extent SWFs would be given a say in RDIF’s choice of investments, according to this SWF executive.

However, as these opportunities may be similar in structure to privatisations, the SWFs will probably win minority stakes, not controlling positions. To control their risk, SWFs are most likely to co-invest on a deal-by-deal basis, rather than simply serve as limited partners to the RDIF.

AsianInvestor and sister publication FinanceAsia are set to host the second annual Russia Capital Raising and Investments Summit in Hong Kong on July 5 and 6. Separately, the July magazine edition of AsianInvestor includes a feature on Russian investments.

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