Thursday, April 16, 2009

Where else would you or Russians keep your money?

So many people have said that the States was going to collapse that people would buy other currencies that the States was done for. Well it looks like Russia is not a safe haven; what about China?

Interesting that LP's (investors) have decided they don't like Russia to invest in. After all what is not to like about a country where they kill dissidents with a very hard to get nuclear isotope just to send a message to other dissidents to shut up!

Limited Partners Flee Russia

Posted on: April 15th, 2009

Limited partners rated Russia as the least attractive region in which to deploy capital, according to a recent survey by U.K.-based secondary firm Coller Capital. Nearly three out of four investors surveyed said they would not invest in Russia or other ex-Soviet countries in the coming year.

“Confidence in Russia as an investment destination has declined markedly,” says Coller Capital Partner Erwin Roex.

That may not be particularly surprising, given that the RTS Index, Russia’s equivalent to the Dow Jones Industrial Average, has lost nearly 70% of its value since hitting a high point in May.

The hit to Russia’s economy comes as lenders based outside the country have locked their coffers, credit lines have been called in and the global demand for oil has decreased. The Organisation for Economic Co-operation and Development, which tracks economic data, predicts Russia’s gross domestic product will shrink 5.6% during 2009.

It is this kind of risk that has led investors to demand a premium return from funds investing there. LPs told Coller they would need a rate of return 8.6% more from a Russia-focused fund than from a similar U.S.-focused fund.

Some firms don’t seem to be having any trouble securing commitments. Earlier this month, Siguler Guff & Co. closed $800 million for Russia Partners III, more than double the $355 million it had raised for Russia Partners II in 2004.

Data from Thomson Reuters (publisher of suggests 22 private equity and venture capital funds have raised $6.9 billion over the past five years to invest in Russia. The actual number may be much higher though, as many firms with Russian funds have their headquarters in either New York or London.

Some of the firms that have been the most successful in their fund-raising efforts to invest in Russia over the past five years include Baring Vostok Capital Partners, which raised $1.5 billion for two Russia-focused funds; Renaissance Capital, which raised $660 million for one fund; and Alfa Capital Partners, which raised $626 million for three funds, according to Thomson Reuters.

Before the economic crisis hit, the Russian government had been working to stimulate the development of a domestic venture capital industry. In 2007, it created a $1.25 billion fund of funds, called the Russian Venture Company (RVC), which would buy a non-controlling interest in technology-focused funds investing in Russia.

The RVC backed several funds, including DFJ-VTB Aurora, Bioprocess Capital and Finance Trust—but has since fallen under government censure for the misuse of its funds. Last month, the Prosecutor General of Russia accused the RVC of funneling $222 million into U.S. banks and companies. Since the allegations, RVC CEO Alexei Korobov has stepped down.

People familiar with the matter believe the Prosecutor’s case to be flimsy and say it may be the product of a less than full understanding of the venture capital financing process. The investigation into the Russian Venture Company may result in a restructuring of its operations that some feel may actually help the early stage investors there.

Although Russia has fallen out of favor among LPs in the Coller Capital survey, there has been no sign of private equity investors in emerging markets running for the hills. China and India remain strongly attractive to private equity investors. Brazil also comes out big in the survey.

For the second year in a row, investors in the survey ranked China as the most attractive destination for private equity in the next 12 months. Brazil jumped to second from number four. India was ranked third in the latest survey, down one notch from 2008.

Some 28% of LPs surveyed plan to either increase their investments in Brazil or begin investing there, Roex says.