OREANDA-NEWS. June 07, 2011. The Russian Direct Investments Fund’s (the RDIF) Managing Company was registered with the Federal Tax Service, Vnesheconombank Chairman Vladimir Dmitriev told about it. The RDIF is being set up as instructed by the Russian President. The Head of State stated the intention to set up the Fund at the World Economic Forum in Davos in January. The RDIF is being set up on the basis of VEB with a stated capital of 10 billion dollars. Using this investment mechanism, we plan to raise up to 50 billion dollars in direct investments for Russia’s economy key sectors.

“The RDIF’s Managing Company has been registered today with the Federal Tax Service. We are proceeding ahead of schedule”, said VEB’s Chairman.

According to him, the Fund is to invest in such sectors as biotechnologies, telecommunications, agriculture, infrastructure, innovation power engineering and others. Nevertheless, the Fund would not limit itself to investing only in high priority sectors, said VEB’s Chairman. This must dispel potential investors’ fears that the RDIF is designed to only implement strategic government projects to the detriment of profitability.

Investment transactions can be initiated both by the RDIF and foreign investors. In both cases co-investors are given access to the RDIF’s due diligence but they are supposed to assess investment opportunity on their own and make decisions regardless of the RDIF.

As far as the RDIF is concerned, most funds, more than 80%, are to be used to finance Russian projects and 20% is to be used to finance only those Russia-oriented foreign projects that yield reciprocal synergy and transfer of technologies.

An expected investment exit period is five-seven years.

“I am sure that the Fund will make its first investments till the year end”, said Dmitriev.

Funding

This year, 62 billion rubles are to be allocated from the budget to set up the Fund. “The funds are to be allocated under the Government’s appropriate decisions”, explained Dmitriev.

“We assume that a contribution to the Fund would be made close to September and by this time we have to agree upon all mechanisms with the Finance Ministry.

The RDIF will work with two types of co-investors: long-term-financial investors (sovereign investment funds, pension and insurance companies, direct investments funds with assets under management in excess of 1 billion dollars) and strategic investors (leading sectoral companies with market capitalization in excess of 1 billion dollars).

Investments are to be made given that there are co-investors or groups of co-investors in the ratio of one to one (co-investor/the RDIF).

“We haven’t discussed projects’ minimum profitability ratio yet”, said VEB’s Chairman.

For the time being, the RDIF’s free funds will be invested in foreign high –liquid securities.

Management

“Now, the time has come to set up a team, form charter capital and present the Fund to investors”, said VEB’s Chairman.

The RDIF’s charter capital amounts to 300 million rubles. The Fund will have a three-tier management. Its supervisory board is to be responsible for formulating investment strategy and approving major transactions. The Fund’s investment committee is responsible for considering and making investment decisions as well as for discussing in great detail proposals made by executive management. The third tier is comprised of the Fund’s director general and management board.

Kirill Dmitriev from Icon Private Equity was appointed as the RDIF’s director general.

“At the present stage, it is important to set up a supervisory board to be responsible for approving investment transactions from a certain threshold that has not been established yet. This threshold is to be established by the Fund’s supervisory board” said VEB’s Chairman.

Unique Fund

Mr. Dmitriev says that the Fund being set up is unique.

“The RDIF is to finance a project, given that there are co-investors. This Fund’s feature is unique. In the long run, we should engage investors that do not enjoy the state’s support”, VEB’s Chairman said.

“So far we have to use this sort of investment mechanism being aware that there are things that foreign investors don’t understand pretty well, for example, risk sharing, monitoring of projects. Foreign investors need quasi-public institutions“, he admitted.

“As a rule sovereign funds are set up to make investments abroad or as the case is in Persian Gulf states some funds are used to establish funds designed to finance infrastructure inside the country. But in these countries they do not engage co-investors to implement projects”, explained Dmitriev.