The Russian private equity unit being set up by President Dmitry Medvedev is seeking to hire 25 to 30 investment managers, according to a person with direct knowledge of the plan.
The fund, which will get at least $10 billion of Russian government money over the next five years and be managed by VEB, or Vnesheconombank, the state development bank, will begin hiring in June, the person said, declining to be identified before the information is made public.
Medvedev announced the creation of the fund in January, as part of his drive to wean the economy off its dependence on natural-resource extraction. The venture may attract another $40 billion of co-investment from foreign buyout firms and sovereign wealth funds over the next five years, the head of the fund, Kirill Dmitriev, said by phone from Moscow today.
A former Goldman Sachs Group Inc. banker and president of Moscow-based Icon Private Equity, Dmitriev was appointed yesterday by the government. “Foreign funds with several trillion dollars under management are hovering and considering making investment in Russian private equity,” Dmitriev said.
Putin, Goldman Sachs
Co-investors, who will include international buyout funds, sovereign wealth funds and pensions plans, will be announced at the St. Petersburg economic forum in June, Dmitriev said. Prime Minister Vladimir Putin, who is seeking investors to join the fund, yesterday introduced Dmitriev to representatives from Goldman Sachs, Blackstone Group LP, Abu Dhabi Investment Authority and other funds from the U.S., Europe, Asia and the Middle East, Dmitry Peskov, the premier’s spokesman, said.
Dmitriev said the fund will focus on infrastructure, telecommunications, pharmaceuticals and aerospace.
Russia’s government is finding it difficult to lure international private-equity firms, even as investors increasingly look to emerging markets. Private-equity managers in Russia raised $1.4 billion over the last three years, the least among the BRIC countries, though they are seeking $4 billion this year and next, according to the Washington-based Emerging Markets Private Equity Association. The figure for China in the same period was $28.6 billion, followed by $15 billion for India and $5 billion for Brazil.
Among the top global leveraged buyout firms, only Fort Worth, Texas-based TPG Capital is active in the country. TPG partnered with VTB Capital, the investment arm of Russia’s second-largest bank, to buy 35.4 percent of superstore chain Lenta in 2009. The investors are embroiled in a legal dispute with Svoboda, Lenta’s largest shareholder, over the control of the retailer.
“Russia has not proven to be a place where Western private-equity investors can have the returns and realize the profits commensurate with the risks they’ve had to take,” Carlyle co-founder David Rubenstein said in Berlin in March.
Bader Al-Saad, managing director of Kuwait’s sovereign wealth fund, the Kuwait Investment Authority, or KIA, said it would work with the private equity unit to increase the $600 million it has invested in Russia to date.
“This is a unique concept,” Al-Saad said yesterday in comments to state-controlled channel Russia Today. The presence of the government would be a “comfort,” he said.
Dmitriev said one of the main goals of the Kremlin fund is to reduce the “unfair perception” of Russia being a risky place for investors. “Experienced investors understand that the Russian economy is growing very rapidly and can provide very higher returns.”
The fund will buy minority stakes in companies and offer the same share to investors from “a club,” Dmitriev said. Investors will not be obliged to take part and can do so on a case-by-case basis.
“There are major opportunities to modernize infrastructure and some very big checks will be written,” Dmitreiv said. “Toll roads, ports, bridges need to be built and these might be more interesting for sovereign funds and pension funds who have a longer investment horizon.” Buyout funds might be more interested in telecoms, energy, health care and financial services where the risk and reward may be higher, he said.
Dmitriev, a graduate of Stanford and Harvard universities, worked for McKinsey and Goldman before returning to Russia to work with Delta Private Equity and later Icon, which has about $1 billion under management.
With assistance from Ilya Arkhipov in Moscow and Anne-Sylvaine Chassany in London Editors: Brad Cook, Alex Nicholson.