Patricia M. Cloherty, chairman CEO, Delta Capital Management

Are you bullish on private equity in Russia?
There's always push and pull in this kind of market and it's not as if private equity is a well-established product in Russia. Now is a period of launch for the private equity industry: it's been a dress rehearsal to date. But I am optimistic: the economy is getting identifiable contours and is no longer defence and energy centric. It's much more diverse now and that means we can invest across a range of sectors. And these newer sectors – and a burgeoning middle class – are helping drive the economy: GDP expansion is very high. There are good reasons to be bullish.

But there still seem to be some question marks?
Yes. The relationship between state and business is still being defined – and this will take time to be resolved. The legal system is much more robust than it was in the mid-90's, but there are still holes too: IP law is not sufficiently developed for us to invest with confidence in the biotech industry for example. But these are issues that should be expected and I don't see significant retrograde steps being taken.

Is the imprisonment of Mikhail Khodorkovsky a concern?
I don't see it having far-reaching effects. This is very much about people not companies so its significance for private equity investment is a bit remote. Obviously it has all the ingredients that make extensive press coverage inevitable, but in the context of everyday business life in Russia it is not a major concern.

What about corporate governance?
As a life long student of corporate governance I have been particularly interested in how Russian companies – and Russian managers in particular – are coming to terms with governance orthodoxies. Many are: there's always a cost to transparency but we are finding that some management teams have crossed that bridge. And by selecting management teams who support good corporate governance you can be confident that the business is going to have the transparency you need. It's not all plain sailing though: it's a slow boring of hard wood. We had to assert our shareholder rights in connection with a portfolio company for example: we did litigate and we won. That was an important victory.

What's the state of the Russian private equity market at the moment?
Geography still matters in Russia: the old theory of “islands of automation” applies here. There are much more commercially evolved areas across the country and these are the more obvious places to invest. Outside these areas you will be presented with a very different set of opportunities, and your criteria have to be reshaped to match these. You will also encounter companies throughout the economy that dominate a sector but can still be acquired for relatively small amounts of capital. And there are new sectors that are very exciting: we have found great companies in consumer and retail as well as financial services. And although Technology, Media and Telecommunications can cover a multitude of sins, there are very interesting opportunities there too. Perhaps more importantly things are just far less chaotic nowadays – what is amazing is how things are starting to gel.

Delta's history seems unusual…
Because of the origins of the US Russia Investment fund? I suppose that was a pretty unusual start [the fund was backed by US$440m of public money sanctioned by US congress and started investing in Russian companies in 1994], but we are a straightforward private equity firm now. One reason is that we have raised, and continue to raise, private sector capital and that means we can't be anything less than competitive. We're looking to invest in companies in Russia that can deliver exceptional returns to our investors, it's as simple as that. And because we have been around for some time, our network on the ground is good.

You also have some impressive names on your advisory board.
You're right. And although none of them are paid they are extremely active. It's an undeniable benefit to have people like Frank Caulfield [General Partner at Kleiner, Perkins, Caulfield & Byers] and Robert Hormats [Vice Chairman of Goldman Sachs International] participating. And they all do participate: they are enthused by what they see as an historical turning point for the country.