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Ukraine Crisis: Decreasing Confidence in Russian Private Equity – September 2014

The deteriorating situation along the Russia-Ukraine border has had notable repercussions across the financial markets, the latest of which was the widely-reported demise of DMC Partners’ $2bn private equity fund. It has been indicated that the conflict in the region, which has resulted in political and economic sanctions between Russia and the West, had a significant impact on the fundraising capability of the vehicle, which had intended to include Russia within its main geographic focus.

Preqin’s Fund Manager Profiles shows that there are 193 private equity firms that currently include Russia as a part of their investment remit. These firms have raised $159bn in total capital commitments over the last 10 years and have an estimated $32bn of dry powder to invest. Of the $159bn in capital, 37% is accounted for by TPG Capital Partners whose founder, David Bonderman, sits on the board of the Russian Direct Investment Fund (RDIF). RDIF saw the departure of Kurt Björklund, co-managing partner at Permira, from its board earlier this year in direct response to the ongoing crisis.

There are 35 private equity firms on the Preqin database that have a geographic investment focus solely on Russia, and of these, Glorax Capital has raised the most capital over the last decade. This firm is currently raising a hybrid vehicle that has recently held a first close on $1bn, and targets $3bn overall. Glorax Capital invests in road and infrastructure construction, development projects, and IT start-ups.

Of the firms that currently include Russia within their private equity investment strategy, the majority (51%) are based in the country itself. Twenty-seven percent are headquartered in the rest of Europe, 15% in North America and 5% in Asia. The Middle East, Israel, and Africa make up the remaining 2% of these private equity firms. While the long-term nature of the asset class means that it will be a few years before the full effect of the conflict is felt, it will be interesting to observe the fundraising efforts of those Russia-based firms over the next few months. The increasingly hostile relations between the East and West are sure to prove a significant stumbling block for GPs looking for opportunities in the region.

Keywords: Russia, private equity fund managers, fundraising, Ukraine crisis, Ukraine