Russia fund lands debut partnership(2)

The Russian Direct Investment Fund, a $10 billion vehicle backed by the Russian government, has partnered on its first co-investment, announcing the formation of the Russia-China Investment Fund with the China Investment Corporation. The fund, which is targeting between $3 billion and $4 billion, will make most of its investments in Russia.

The RDIF and CIC will each commit $1 billion in equity to the fund, with an additional $1 billion or more to be raised from outside investors. The fund will officially launch early next year, according to a statement. RDIF will be responsible for building up the professional investment team and fund management.

The RDIF, which launched earlier this year, is mandated to match each of its investments with that of an international co-investor, primarily targeting equity investments in Russian businesses. Lou Jiwei, Chairman and Chief Executive Officer of the China Investment Corporation, is a member of RDIF’s advisory board.

In an interview with Private Equity International last month, RDIF chief executive officer Kirill Dmitriev said he understands the hesitancy of investors to bet on Russia, but the fund will be taking on risk right alongside investors, which should (and did) give private equity managers confidence that Russia is a more secure investment than in the past.

“We are solving a very specific issue, Russia has a lot of money already. So we’re not just bringing in money, we’re bringing in smart money,” Dmitriev said. “Whenever you enter a new market, you really need a partner and you have some hesitations about the new market, and obviously Russia has been criticized for many things. And there are real issues the government is solving and then there is a major perception gap that is very unique and creates many arbitrage opportunities.”

CIC has become a major private equity investor – making large commitments to the likes of Lexington Partners, 3i and Apax Partners. In July, the sovereign wealth fund increased its investments in alternative assets to 21 percent for the year 2010 from 6 percent the previous year.