Elbrus defies Russia’s frosty climate to hit first close on Fund III

LP appetite for Russian private equity has been uncertain since the 2019 arrest of Baring Vostok founder Michael Calvey and several colleagues.

Elbrus Capital, a Russia- and Commonwealth of Independent States-focused private equity firm, has held a first close on its third fund, Private Equity International understands.

Elbrus Capital Fund III closed on $165 million in December and is expected to reach final close by year-end, according to two sources with knowledge of the matter. The fund has raised commitments of more than $260 million, some of which will be made available later in the fundraise, one of the sources noted.

Two large Middle Eastern investors committed to the first close, as did several European development finance institutions, the same source added. The fund, which was first reported by PEI in 2019, has a $600 million target. MVision is understood to be serving as placement agent, as previously reported.

Elbrus Capital Fund II, a $550 million 2014-vintage, was tracking at a 2.9x gross money-multiple at year end, the source said. Notable investments include the 2016 acquisition of Russian recruitment business Headhunter, which listed on the Nasdaq exchange in 2019. The business was worth $700 million at IPO and had a roughly $1.5 billion market cap as of mid-January.

Elbrus declined to comment.

Investor appetite for Russian private equity has been uncertain in recent years due to the 2019 arrest of Baring Vostok Capital Partners founder Michael Calvey and several colleagues. Calvey was freed from house arrest in November after a dispute between BVCP and Vostochny Bank was declared settled in court, with the case against him ongoing, per a BVCP statement.

Elbrus partnered with BVCP, Russian Direct Investment Fund and RTP Global in June to launch a $200 million investment platform targeting domestic companies affected by the pandemic. A consortium of investors led by Elbrus and Winter Capital also acquired a stake in financial marketplace Banki.ru in November. The firm sold its majority stake in document storage business OSG Records Management in February.

Russia dealmaking over the past 18 months featured heavy participation from eastern investors. In late 2019, RDIF joined with the Russian-Chinese Investment Fund and several Middle Eastern funds to acquire pharmaceutical business Alium. The pair also partnered with Mubadala to acquire a stake in video streaming service ivi.ru that year.

Private activity in Russia was depressed last year by the combined effects of covid-19, a sharp decline in oil prices and the depreciation of the Russian rouble against other major currencies in the first half of 2020, according to a December legal briefing from Herbert Smith Freehills.

“These negative trends, and the associated uncertainty for the Russian economy, are likely to depress private equity activity in Russia and, in particular, investors are likely to adopt a ‘wait and see’ approach to major transactions during 2020, deferring these decisions into the first quarter of 2021,” the report noted. “Overall, the Russian private equity market faces a tough period and we are unlikely to see a major uptick in transaction activity or new fundraisings in the next 12 months.”