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Sanctions on Russian fund show dashed hopes of Moscow’s cooperation with democracies

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International investors have spent years approaching a Putin-controlled Russian sovereign wealth fund. Now it’s over.


The Russian Direct Investment Fund was the toast of Wall Street until the 2014 invasion of Crimea put an end to the party. Today, Russia’s war in Ukraine has upended state-controlled funds from Japan, France and Italy, leaving investors from China, Saudi Arabia and the United Arab Emirates to maintain afloat what the United States has called President Vladimir Putin’s “slush fund.”

On Feb. 28, the Biden administration imposed sanctions on RDIF, a $10 billion sovereign wealth fund, and its CEO, Kirill Dmitriev. The fund was launched in 2011, a period of relative thaw in relations between Russia and the United States. It was seen, optimistically in hindsight, as a way to promote market capitalism in Russia while Dmitriev, a budding financial star, could work with top fund managers. around the world by forging mutually beneficial relationships. The sanctions are not only emblematic of the speed with which Western countries moved to punish Putin for his war, but also of the dashed hopes of a friendlier economic future that Moscow would share with the world’s democracies.

The RDIF was created to make it easier for foreign companies to co-invest with the Kremlin in Russian companies. However, less than 10% of the money comes from Russia, according to statements on the now offline RDIF website. In total, the RDIF has facilitated more than $40 billion in foreign investment in 100 deals, according to World Economic Forum and PitchBook data.

“When it was launched, RDIF had an interesting mission to help modernize the Russian economy with the promise that it would eliminate politics and government interference in real business operations,” said Matthew Murray, a professor at Columbia University’s School of International and Public. Businessman who lived in Russia for more than two decades and advised the RDIF on business ethics in its early days.

The sanctions do not seem to directly affect the Japan Bank for International Cooperation and two sovereign funds, the French Bpifrance and the Italian Cassa Depositi e Prestiti. The Japanese and French investment vehicles, however, said they were suspending all investments and partnerships with the RDIF. The Italian fund declined to comment on its relationship with RDIF or its future investment plans, but a company it controls, Ansaldo Energia, was in talks with Russia’s NordEnergoGroup about a joint venture shortly before the Russia invades Ukraine, Bloomberg reported.

JBIC’s investments include Sovcombank, one of Russia’s largest banks, currently under US, EU and UK sanctions. the bank based SBI Holdings, a methanol project in Volgograd with the Russian company Aeon Corp., the telemedicine company Doctis and the pharmaceutical company R-Farm. The website of the Russia-Japan Investment Fund, the umbrella under which JBIC invests, went black after Forbes emailed questions about his Russian investments (but can still be viewed here).

In a statement, the JBIC said that although the bank’s investments in Russia, with the exception of Sovcombank, are not subject to sanctions, “we believe that it is not possible to make new investments in this context in the current circumstances”.

Bpifrance joined the RDIF in 2016 with a target of $325 million in investments shared between the two countries. In this context, Bpifrance has signed letters of intent to invest in Russian companies and the Russian fund has purchased bonds from the French glassmaker Arc International, which operates in the United States and generates an estimated annual turnover of 6 billion of dollars.

“In accordance with the current sanctions regime, no further investment projects will be considered,” a spokesperson said in a statement. “Bpifrance will not invest in Russia.” Bpifrance never made the planned Russian investments and “is complying with the sanctions”, added the spokesperson. Arc International did not respond to a request for comment.

Cassa Depositi e Prestiti, the Italian fund, signed separate MoUs with RDIF in 2013 and again in 2019 to promote deals between Russia and Italy. The group has not yet made any known Russian investments.

The RDIF is “widely seen as a slush fund for President Vladimir Putin and is emblematic of Russia’s wider kleptocracy”, according to the US Treasury Department.

RDIF appears to retain the support of its main backers – China, Saudi Arabia and the United Arab Emirates – who have provided the majority of capital in joint RDIF investments. A source close to the UAE’s Mubadala fund said no changes had been made to its partnership with RDIF. China Investment Corporation, China’s sovereign wealth fund and Saudi Arabia’s Public Investment Fund did not respond to requests for comment.

“RDIF still has geopolitical value to the Putin government,” said David Szakonyi, a professor at George Washington University who wrote about the fund. “It’s a strategic tool for developing relationships with a whole range of governments that the West may not pay as much attention to.”

When RDIF was launched in 2011 under the leadership of Russian President Dmitry Medvedev, the fund’s early advisers included three of America’s wealthiest private equity moguls – Stephen Schwarzman of Blackstone, David Bonderman of TPG and Leon Black of ‘Apollo – as well as executives from buyout firms Warburg Pincus, Apax Partners and Permira. Representatives of the three private equity billionaires say they resigned as advisers after Russia invaded Crimea in 2014; a TPG spokesperson said the company no longer holds Russian assets.

“All these private equity groups were looking for a way to invest in the modernization of the Russian economy and were attracted by this unique formula – that the [Russian] the state would match their investment 50-50,” Murray said.

Kirill Dmitriev, CEO of RDIF, has been a source of comfort for finicky US and European investors. “He was very well regarded and had strong ties to the United States,” Murray said. He had studied at Stanford and Harvard Business School and worked at Goldman Sachs and McKinsey & Co. Patricia Cloherty, CEO of an American-Russian fund where Dmitriev also worked, described him in testimony to the United States Senate as “a precious partner”. which was “on its way to becoming an international leader in private equity”.

In 2011, Russia was seeking to join the World Trade Organization. It was “a different time,” Murray said. “Russia was generally looking for constructive ways to open its market to foreign investment in a way that would reduce the risks of such investment, and in particular reduce the risk of corruption and expropriation.”

Putin’s return to the presidency in 2012 after one term as prime minister and Russia’s annexation of Crimea two years later marked a turning point in the trajectory of the RDIF. Sanctions in 2014 against the fund’s parent bank, Vnesheconombank, spooked RDIF’s US private equity advisers, who disappeared from the fund’s website and quietly quit. The fund focused more on “reducing Russia’s dependence on Western finance and technology,” said Szakonyi of George Washington University. The Saudi Public Investment Fund committed $10 billion in 2015. China, which had already committed several billion dollars, committed another $10 billion in 2017.

“They started making these alliances with China and other countries that weren’t going to require them to meet basic standards of corporate governance, business ethics and anti-corruption,” Murray said.

The RDIF has also strayed from its mandate to attract foreign investment. In late 2015, he funneled $1.75 billion in Russian pension funds from the country’s National Social Welfare Fund to Sibur, a petrochemical giant owned by Russian oligarchs, in the form of a low-interest bond. . That’s when the fund became a political tool for Putin, according to Murray. “He was looking for a way to use Russian state money to build alliances around the idea of ​​a state-sponsored oligarchy,” Murray said.

Following US sanctions, RDIF issued a statement saying that it “has never been involved in political activities”, that it “always fully complies with the laws of the countries where it makes its investments” and that “the imposition of sanctions against the RDIF, which from the time it was established has represented the establishment of international relations and the support of constructive ties, demonstrates that the United States has chosen the path to destroy constructive dialogue between countries .

According to Murray, the loss of support for the RDIF by democratic countries reflects its evolution – and that of Russia – as Putin consolidated his power. “Unfortunately, for the Russian Direct Investment Fund, it has not been able to escape the fate of President Putin’s failing economic leadership over the past decade,” he said. “He could not escape the fate of Putinism.”