Page 132 - IFR Opportunities in Russian capital markets

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ifrintelligence reports/Opportunities in: Russian Capital Markets
There are actually a whole series of venture capital funds being set up. The VCR is the flagship and will be run on a fund-of-funds basis – Gref will oversee the creation of around 10 funds with US$50m of state money in each. The government will contribute 49% of the capital, with the remaining 51% being raised from private investors. As it is in the minority, the government plays no role in the investment decision-making process. Professional fund managers under the supervision of independent directors will manage each fund.
"Venture capital investment can only be done with the participation of the private sector. The fewer the bureaucrats that get involved, the better", Gref said.
The private managers are the key to the success of the venture. All of Russia’s asset management companies have been vying for the job of managing a fund and the Kremlin has whittled the list down to about a dozen well-known names. Managers will be paid 2% of the portfolio they manage as a fee, as well as 20% of the returns they make.
State telecoms venture fund
While market participants welcome the RVC plan as optimal they are less happy with the state’s telecoms fund. Set up in parallel to the RVC, the Ministry of Telecoms, under Leonid Reiman, will be allocated another US$300m which it can invest directly into companies working in the telecoms sector.
“The point of the RVC’s fund-of-funds structure is to remove bureaucrats from the investment decision process. Not only are they by definition the worst people to make this sort of decision, you also lay yourself open to the problems of vested interests and corruption. The structure of the telcoms fund is fundamentally flawed”, says a Western banker involved in the talks.
Reiman has been dogged by allegations of following self-serving polices and has been accused of being the ultimate beneficial owner of Russia’s third largest mobile phone company, Megafon, during a money laundering probe by German investigators earlier this year, an accusation he has always strenuously denied.
Regional venture capital funds
In addition to the federal funds the first regional venture capital fund has already appeared. At the start of October 2006 the Moscow Venture Fund began to accept financing applications from projects.
Managed by Alliance Rosno Asset Management, which is part of an insurance group controlled by the Alfa Group, the fund received its first tranche from a total of RUB2bn (US$77m) in financing for such funds from the state over the summer. In total, the federal government will contribute RUB200m (US$7.5m), the Moscow city government another RUB200m and the remaining RUB400m is being placed by private investors.
Rosno has set the minimum investment in a project at RUB10m (US$375,000) and the maximum at RUB120m (US$4.5m). It hopes these projects will return at least 30% each. The company says that 75% of assets will go into early stage projects, with 15% invested in companies that have just started work and the last 10% for small companies that want to expand.
Other funds have also been registered by the Federal Service for Financial Markets (FSFM) in Tatarstan, the Perm and Krasnoyarsk Krai and the Tomsk region and are supposed start receiving finance by the end of the year.
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