U.S.-Backed Venture Fund to Raise $150M

The U.S.-Russia Investment Fund is setting up a new venture capital fund that is expected to attract as much as $150 million in foreign investment.

The new Delta Russian Fund has already been informally christened "the kit for fledgling capitalists" and will be managed by Delta Capital, which was established a year ago to handle The U.S.-Russia Investment Fund’s, or TUSRIF’s, investments.

Registration is already underway and operations may kick off as early as this summer, once the reliability of the Russian partners seeking investments has been checked, said Patricia Cloherty, chairman of the fund’s board of directors,

TUSRIF was established in 1995 with the participation of the U.S. government, and it has so far invested about $250 million in 35 projects — with most of the money provided by the U.S. Agency for International Development, or USAID.

The fund’s main focus is on mortgages and other consumer loans via Russian banks. Last year the fund distributed around $4 million in mortgages and approved loans of an additional $13 million. Last October, the fund became a majority shareholder in the Bank for Development and Restructuring.

"Initially, we plan to attract $100 million to $150 million in private investments into certain areas, depending on the state of the market," said a Delta Capital representative, who requested that his name be withheld.

So far only broadly-defined investment fields have been decided, including technology, telecommunications, media and financial services such as mortgages and projects aimed at the consumer market, the representative said. Delta Capital already has extensive experience in the latter two sectors, and they are well aware of the market potential and risks.

Pavel Teplukhin, president of the Troika Dialog brokerage and is familiar with the fund, said that its potential areas of investment have been well selected and $150 million is a realistic target.

As far as direct investment in Russian shares is concerned, the fund has acquired some painful, but instructive experience after its purchase of Lomonosov Porcelain Factory in St. Petersburg. Having paid millions of dollars for shares in the famous factory, together with U.S. company KKR, the fund nearly lost its entire investment after running into legal problems with Lomonosov management.

"The fund had a difficult start — it hadn’t quite understood the peculiarities of working in Russia, but as experience grew so did the quality of its work," Teplukhin said.

Now Delta Capital managers know the treatment foreign investors can expect in Russia — and how to avoid it.

But it wasn’t solely a question of confidence that inspired Delta Capital to work with private investors’ funds.

"We are well aware that the government money allocated to us may run out or that a decision may be made to cancel further investments," the Delta Capital representative said.

"Being a private equity fund is simpler from the point of view of business planning. This does not mean that the U.S.-Russia fund will stop operating in Russia, however," he said.