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Kremlin Private Equity Fund Talking With China on Investment

The Russian private-equity unit being set up by President Dmitry Medvedev is in talks with a Chinese group about making joint investments, as the nation seeks to reverse an outflow of foreign capital.

Details of the partnership may be announced in October, Kirill Dmitriev, head of the Russia Direct Investment Fund, said in an interview today at Bloomberg’s headquarters in New York. The new joint fund would co-invest in deals “that benefit from the Russia-China relationship and Russia-China trade,” he said, declining to provide details.

Dmitriev said Russia’s fund seeks to reassure those wary of investing in the country by putting government money alongside their capital in pursuit of returns of as much as 30 percent. He plans to meet in New York today with investment executives including Neuberger Berman Group LLC Chief Executive Officer George Walker, WL Ross & Co. Chairman Wilbur Ross and Warburg Pincus LLC Co-President Charles Kaye.

Russia’s government, which will provide about $10 billion in the next five years to the Direct Investment Fund, aims to attract an additional $50 billion of co-investment from foreign buyout firms, sovereign wealth funds and companies seeking to expand in the country. Medvedev announced the creation of the fund in January to attract foreign investment amid efforts to deepen capital markets and wean Russia’s economy off its reliance on oil, natural gas and metals exports.

‘General’ Commitments

The first co-investment deals will probably be agreed upon by the first quarter of 2012, Stanislav Voskresensky, a Russian deputy economy minister also meeting potential investors in New York, said in an interview today.

“The commitments now are general,” Voskresensky said, adding that some of the executives he and Dmitriev have met with “are considering specific deals” in the “non-commodity sector.” He declined to provide details.

Russia may see $30 billion to $40 billion in net capital outflows this year, Deputy Economy Minister Andrei Klepach said on Aug. 27, reversing the ministry’s earlier forecast for zero capital flight. Outflows through the first half are estimated at $31.2 billion, according to preliminary central bank data.

“Attracting foreign capital wasn’t really the key point five or six years ago, because then the key point was how do you put some institutions in place, and how do you govern it,” Dmitriev said. Today, “everybody understands that Russia needs to compete for foreign capital, it needs to be attractive for foreign capital and it needs to be a better communicator.”

$5 Billion

The fund expects to complete some of the 20 deals it’s working on, with a combined value of $5 billion, by early next year, Dmitriev said. It’s in talks with a European pharmaceutical company seeking to expand in Russia, and a sovereign wealth fund about a potential $1 billion investment, he said.

The Russian Direct Investment Fund this month appointed an international advisory board including Lou Jiwei, chairman of China Investment Corp., Blackstone Group LP CEO Stephen Schwarzman, and Leon Black, CEO of Apollo Global Management LLC.

To contact the reporters on this story: Beth Jinks in New York at bjinks1@bloomberg.net; Cristina Alesci in New York at calesci2@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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