By Kerry Sunter Head of CI Fund Operations Kleinwort Benson
There have been many references to investing in Russia in the financial press recently. So what's the deal with this?
Isn't Russia that corrupt country where only the most hardened of investors dare venture to risk their capital at their own peril? That doesn't seem to fit with the increased recent interest in funds being launched in Jersey, which have specifically focused on investing into Russia, using a variety of sectors for investment into the country, including Private Equity, Infrastructure, Clean Tech and Real Estate.
Apparently, the current and general view amongst high profile investors and Investment Managers globally is that although Russia is very cheap to invest in, it is certainly not for the cautious investor, given the country's history over the last 15 to 20 years, which includes a bail out from the IMF and rumours (and some confirmed reports) of corruption being rife.
The Russian government has confirmed in recent years that they recognise corruption as one of the most serious problems facing the country, and have taken steps to counter it. There have also been reports confirming the view that most Russians believe there is no place for corruption in Russia's future, if it is to succeed in becoming one of the global financial players.
But what does this mean for investors, is Russia safe to invest in? The World Bank reported earlier this year that inflation in Russia had reached its lowest point for two decades and that the country's public debt is currently approximately around 10% of GDP, compared to the US, where it has reached 100%. Russia's MICEX index has risen 5.42% since the start of the year and Russian stocks are seen as having more attractive price to earnings ratios than other countries that form part of the BRICs (Brazil, Russia, India, China).
So clearly the growth opportunities are there, but all of that comes with risk, and it seems that some investors are willing to accept that risk. We have seen a number of Russian investing funds being launched in Jersey recently, including the Tatarstan Clean Tech Fund LP, which was the first ever international Clean Tech fund with a specific mandate to focus on the Russian Federation. The Fund has been seeded with €110 million, with a target fund size of €200 million.
Clean Tech and Renewable Energy aren't the only areas in Russia that Managers are focusing on. We have also seen enquiries for funds investing into infrastructure and following some promotion locally by Jersey Finance and other organisations, we expect to see the enquiries for funds in this area increase in the coming year.
Managers are beginning to explore launching new structures investing into Russia so this must bode well for Jersey. The jurisdiction has a finance sector which is already experienced in the Russian market and this, combined with a first class regulatory structure for funds, means that it is surely onto a winning formula.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.