The composition and structure of assets of mutual investment funds are determined by the Regulations on the composition and structure of mutual fund assets. Below we provide a brief comparative description of the features of mutual funds for venture capital, direct and long-term direct investments.
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Mutual Fund for venture investments |
Direct investment mutual fund |
Mutual fund for long-term direct investments |
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Cash in Russian currency in accounts and deposits with credit institutions |
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Foreign currency in accounts and deposits with credit institutions |
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Including those released Russian households societies, more than 25 percent of outstanding shares (shares |
Including those released Russian households societies, more than 25 percent of posted ordinary shares (shares in authorized capital) of which the fund’s assets constitute |
Including those released legal entities ami, more than 25 percent of outstanding shares ( shares or participation rights in authorized capital) which constitute the assets of the fund |
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Shares of Russian joint stock companies |
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Shares of foreign joint stock companies |
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Shares in the authorized capitals of Russian limited liability companies |
Yes, more than 25 percent of the company's authorized capital |
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Rights of participation in the authorized capitals of foreign commercial organizations |
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Bonds |
Bonds more than 25 percent |
Bonds Russian business companies, in respect of which a securities prospectus has not been registered, if more 50 percent placed ordinary shares (stakes in authorized capital) of these companies constitute the assets of the fund |
Bonds legal entities, in respect of which a prospectus has not been registered, if more 25 percent placed shares (shares or participation rights in the authorized capitals) of these persons constitute the assets of the fund |
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Bills of exchange |
Promissory notes Russian joint stock companies (limited liability companies), If more than 25 percent placed shares (stakes in authorized capital) of these companies constitute the assets of the fund |
Promissory notes Russian business companies, If more than 50 percent posted ordinary shares (shares in authorized capital) of these companies constitute the assets of the fund |
Promissory notes legal entities, more than 25 percent placed shares (shares or participation rights in authorized capital) which constitute the assets of the fund |
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Property rights under obligations under loan agreements |
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Options |
Property rights from option agreements (contracts), the underlying asset of which are interest rates, as well as the underlying asset of which are futures agreements (contracts), the underlying asset of which are interest rates |
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Futures |
Property rights from futures agreements (contracts), the underlying asset of which is interest rates |
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Depository receipts |
Russian and foreign depositary receipts for the securities provided for above |
Please note that due to changes in the Civil Code from September 1, 2014, there is legislative uncertainty as to which organizational and legal forms are “economic companies.” We believe that these will include joint-stock companies and limited liability companies.
Please note that the management company of a private equity fund does not have the right to acquire assets (shares, shares) when establishing the corresponding business company. In accordance with the Regulations on the composition and structure of assets, the following restrictions are imposed on the structure of assets of mutual investment funds:
In accordance with clause 1.14 of the Regulations on the composition and structure of mutual fund assets, debt instruments mean bonds and exchange-traded bonds of Russian business companies, state Central Banks of the Russian Federation, state Central Banks of the constituent entities of the Russian Federation and municipal Central Banks, bonds of foreign issuers and international financial organizations of a certain category, Russian and foreign depositary receipts for the above categories of securities. We assume that the wording “including...” sets appropriate restrictions on investing in bonds of Russian households. companies for venture funds and direct investment funds, in bonds of Russian and foreign issuers - for long-term direct investment funds.
The assets of a fund for especially risky (venture) investments cannot include shares of Russian limited liability companies and shares of Russian joint-stock companies if these companies are affiliated persons of a specialized depository, auditor, appraiser, registrar of a joint-stock investment fund, or a person maintaining a register of owners investment units, or carry out: activities of credit institutions, insurance activities, activities of professional participants in the securities market, auditing activities, appraisal activities, activities for managing investment funds, mutual funds and non-state pension funds, activities for organizing and conducting gambling in bookmakers and sweepstakes, construction of buildings and structures, organization of exchange activities, tour operator activities, travel agency activities, activities for the sale of rights to club holidays.
The number of ordinary shares of a joint-stock company that are not included in the quotation lists of stock exchanges must be more than 25 percent of the total number of placed ordinary shares of this joint-stock company, for which reports on the results of the issue (additional issue) have been registered.
Russian Direct Investment Fund (RDIF) organized in June 2011 with a capitalization of US$10 billion allocated by the Russian government to make profitable investments in the capital of companies on the principles of co-investment.
RDIF implements direct investment projects, mainly in Russia. As part of each investment project, RDIF attracts investment partners, whose contribution is at least not less than the contribution of the fund itself, which should become a catalyst for the growth of direct investment in the Russian economy.
Since the beginning of its activities, RDIF, together with its partners, has invested more than 400 billion rubles in the Russian economy, of which 50 billion rubles are funds from the Fund, and more than 350 billion rubles are funds from co-investors and banks.
As of July 2012, the corporate governance structure of the RDIF was built in accordance with the practice adopted by the world's leading private equity funds:
The Investment Committee reviews and makes investment decisions of the Fund, and also prepares proposals for consideration by the Supervisory Board.
The Fund's executive management, headed by the General Director, is focused on performing the tasks of selecting, analyzing, structuring and executing investment transactions of the Fund, and also participates in the strategic management of portfolio companies.
An international expert council was created under the corporate governance bodies of the Fund. The Council consists of representatives of the investment and academic communities, as well as business leaders with significant experience and recognized reputation.
On June 13, 2019, it became known that the Russian Direct Investment Fund (RDIF), the sovereign wealth fund of the Russian Federation, the sovereign fund of the French Republic Bpifrance and the French company Schneider Electric, a world expert in the digital transformation of energy management and automation, agreed on trilateral investments in the field of energy saving. Read more.
On May 30, 2019, it became known that the Russian Direct Investment Fund (RDIF) had received $2 billion from foreign investors. The funds will be allocated to Russian companies involved in the development of artificial intelligence technologies.
RDIF reports that it reviewed 100 Russian companies in the field of artificial intelligence, selected 20 and is at various stages of negotiations with them. Among the selected startups are the manufacturer of bioelectric prostheses with PayPass “Motorika” and the medical project Oncobox, which is engaged in the diagnosis of oncological diseases. Investments in these companies have been approved but not completed.
RDIF is going to invest money not only directly in artificial intelligence, but also in related areas, such as cloud computing, data processing and collection centers, AI for business, government and the population. About 5–10 investment transactions are planned per year. Preference will be given to companies with a stable business model. The amount of investment will be determined individually.
According to Runa Capital managing partner Dmitry Chikhachev and RVC investment director Alexey Basov, $2 billion is a lot for the Russian AI solutions market, but it is possible to find suitable infrastructure projects.
In April 2019, RDIF announced an investment in the developer of facial recognition systems VisionLabs.
On September 18, 2018, it became known that WayRay had attracted investments in the amount of $80 million. The Russian Direct Investment Fund (RDIF) together with a consortium of sovereign funds (Japan, Saudi Arabia, Kuwait, UAE, Bahrain) took part in the financial transaction, which was led by Porsche. including the Russian-Japanese Investment Fund (created by RDIF and JBIC), as well as Hyundai Motor, Alibaba Group, AFK Sistema, China Merchants Capital and JVC Kenwood funds. Read more.
In March 2015, the Fund acted as the lead anchor investor in the secondary offering of shares of Lenta Ltd, one of the largest and most successful retail chains in Russia.
In February 2015, RDIF, Changi Airports International, a wholly owned subsidiary of Changi Airport Group, one of the world's leading airport operators, and Basic Element Group, one of the largest diversified business groups in Russia, were announced as the winners of the tender to acquire shares of the International Vladivostok airport. Shares between consortium members will be distributed evenly.
In October 2014, RDIF, leading Middle Eastern investment funds and Development Group 19 (“DG19”), a leading Russian company in the field of development and real estate management, agreed to jointly invest in the creation of class “A” warehouse real estate in the Russian Federation.
In January 2014, the Russian Direct Investment Fund (RDIF) and the European Bank for Reconstruction and Development (EBRD) announced a joint investment in Cotton Way, the Russian market leader in textile rental and professional processing services.
In October 2013, RDIF attracted a number of the world's leading investors from North America, the Middle East, Western and Northern Europe and Southeast Asia to a joint consortium to invest in the IPO of AK ALROSA, a Russian diamond mining company. The participation of the consortium contributed to the successful IPO of the company, which in total was valued by the market at RUB 257.7 billion.
In August 2013, the fund, part of a consortium that also included the European Bank for Reconstruction and Development (EBRD) and the CapMan Russia II fund, announced the completion of a transaction to invest in the Maykor group of companies. The partners will gradually invest up to $100 million in Maykor, of which RDIF's share will be $50 million, and the EBRD and CapMan Russia II will invest the remainder. .
The Supervisory Board is the strategic management body of the RDIF, responsible for the Fund’s investment strategy, key rules and approaches. As of July 2012, the members of the supervisory board were:
As a result of negotiations, a co-investment model was developed. Foreign investors will invest directly in projects together with a Russian partner fund, but based on their own investment decision. The parties recognized the key principle of such investments to be aimed at obtaining high returns.
After Russia’s successful recovery from the global economic crisis of 2008-2009, the government began to develop mechanisms to accelerate the influx of foreign direct investment into the country’s economy. President Dmitry Medvedev first voiced the idea of creating a national direct investment fund at the St. Petersburg International Economic Forum in June 2010.
Financial resources invested on a large scale in the assets of an organization or directly for the development of production are recognized as direct investments. To do this, the investment must be so large that the investing party can establish effective control over the management of the organization. With such a large-scale investment, the investing party has a direct interest in the long-term development and successful functioning of the organization.
Direct investment aims to acquire shares of a company, and the acquired part must be a controlling stake. Thus, the invested company comes under the control of the private equity fund. For this purpose, it is common to create funds specializing in this particular area of activity.
Organizations engaged in direct investment, directing their activities to implement the most significant areas of the country's economy, are intermediaries between companies that need financial resources for the development or implementation of a certain large-scale project, and companies that want to provide funds in the required amount. This connection determines the demand for direct investment in modern conditions.
At their core, private equity funds are extremely similar in activity to venture funds. They are brought together by investing in non-public companies, conducting financing through the issue of securities, their subsequent sale and receiving the planned profit. Despite the identity, private equity funds are regulated more strictly and have a number of established restrictions.
Considering the differences within the framework of these funds, the following points can be noted:
Thus, a company financed with the help of a direct development fund receives funds for the additional issue of shares and comes under the management of the fund. The management of the actions of the joint stock company is carried out by administration through the board of directors, their main task in this case is to increase the capitalization of the acquired joint stock company by several times.
Unlike venture capital funds, which also finance start-up companies, private equity funds aim to provide financial injections into developed and long-functioning organizations. Mainly, these are recognized as companies with developed connections and technologies, which at the same time experience a shortage of financial resources for their expansion. At the same time, when making direct investments, funds are not allowed to be founders and take part in the initial placement of securities. These requirements make it possible only to finance existing, not newly created companies.
The indicated financing schemes are not rigid, and therefore there are funds of both types that do not try to be limited to these settings.
When conducting direct investment, funds, when deciding to invest financial resources in a particular organization, are required to consider ways of exiting it in the future. Such ways can be IPO, MBO, as well as the sale of a block of shares owned by the fund.
Mutual investment funds that conduct direct investment may include:
Being quite profitable, mutual funds engaged in direct investment will imply increased risk for investing financial resources. When considering a private investor, it is necessary to note the high requirements for entry into the funds in question. This situation arose as a result of the orientation of mutual investment funds engaged in direct investment towards large investors: these mainly include insurance companies, privately owned pension funds and the like.
In accordance with current legislation in Russia, the period of operation of closed-end mutual funds cannot exceed 15 years. At the same time, direct investments are long-term in nature and do not provide shareholders with immediate profits. Considering the investments, the duration of mutual funds and the fact that they cannot buy out the share of the investor at his request, making a profit becomes problematic.
The problems that these funds encounter in carrying out their functions are mainly related to the limited number of companies suitable for investment. Their number in the Russian Federation does not have the capacity to expand the activities of direct investment funds.
For practical reasons, the purpose of which is to make a profit, funds should invest their funds in as many companies as possible. This is due to the high risk of financial loss for funds invested in a small number of organizations.
Also an important factor influencing the development of the institution of direct investment is the low activity in the field of investment, which has developed due to historical, social and interstate problems.
A significant problem in the development of the direct investment institution is the obstacle in the form of corrupt activities that reach the upper echelons of power, affecting the distribution of financial resources, the preparation of relevant documentation and the selection of priority investment projects.
Analysts who spoke at the international forum, considering these problems, assessing the current situation in the field of activity under consideration, pointed to the insufficiency of direct investment, which, in turn, affects the dynamics of development.
Guided by the initiative of executive authorities, the Russian Direct Investment Fund (RDIF) was created in 2011. Its priority goal is to make direct investments in Russian companies that are leaders in their field or show good prospects for development.
The fund also tries to attract financial resources from leading international investors, acting as a co-investor with them, which has a beneficial effect on the overall development of the investment situation in Russia.
The Russian Direct Investment Fund RDIF currently has a leading position among sovereign funds represented on the world market. The scope of activities of this organization includes attracting both financial and strategic co-investors.
This is done by identifying and further implementing the most profitable among the available opportunities. At the same time, the quality and stability of the fund are ensured by state participation.
In conclusion, we can say that the direct investment market in the Russian Federation is characterized by positive and dynamic growth. We are seeing the formation of our own new funds engaged in direct investment, foreign organizations are entering the country’s domestic market, and interest in carrying out serious investment projects is increasing.
However, the direct investment market does not show growth on a large scale, which would allow for the dynamic development of the country's domestic economy.
In a modern market economy, most enterprises are owned by private individuals. A significant portion of the capital that supports companies' operations also comes from private sources. The question of how to register an investment fund arises more and more often; many see this as an opportunity to effectively invest finances. Large manufacturing firms have been privatized. A situation occurs in which it is no longer possible to ask for help from the state. That is why direct long-term investments are becoming the only acceptable option for entrepreneurs. But the concept of creating a fund has a number of nuances.
But the main investor is the Russian Direct Investment Fund. His capital is more than $10 billion.
Why do you need a private equity fund?
The concept itself is often encountered in Russia - it is a set of capital investments in a specific industry (agriculture, transport, industry, high technology). They are necessary to maintain the operation of the enterprise, modernize or replace equipment, and carry out reconstruction. The private equity fund is currently the most steadily growing fund. This is a profitable investment with subsequent profit.
It is worth noting that a private equity fund is an offshoot of a mutual fund. The main goal is income from invested funds. But direct investment has a number of features:
The development of private equity funds is only gaining momentum. The unstable economic situation makes us think about investing in successful projects. This is why startups do not attract much interest from private equity funds, since there is no guarantee of profitability.
Having understood the intricacies of the terminology itself, you can begin to develop the concept of creating a private equity fund. Like any financial project, the task carries certain risks.
Important! Beginning investors should try their hand at investing in shares and securities, bonds of large companies and government agencies. Such a decision will certainly be profitable, win-win. After this, you can think about registering a private equity fund. Firstly, a wealth of knowledge and experience will appear. Secondly, confidence will increase.
The main decision before creating a private equity fund will be the choice of the area in which the fund’s founders will be willing to invest their own finances. It is best to pay attention, even before formal documentary confirmation of registration, to currently popular destinations. Only a professional will be able to assess risks, find the strengths and weaknesses of a certain area or enterprise, create a restructuring program, and make adjustments to the work.
The founder of the fund, who is also the CEO, must cooperate with an investment consultant - a professional who deals with transactions with shares of non-public companies. Typically, an investment fund manages several direct investment projects for a period of 10 years. Every 3-5 years it is necessary to create new projects as existing ones are fully funded.
Important! When deciding to become a member of the fund, you must use the method of elimination. Gradually removing from the list organizations that are not suitable for one or more parameters. You shouldn’t look for advantages; it’s better to focus on a large number of risks.
Most often, direct investment funds invest in portfolio companies - the object of the fund's activities in order to obtain a share or a full block of shares. Thus, the risk is minimized, and the possibility of obtaining quick and high profits increases.
In general, the registration format looks like this:
It seems that the registration procedure for this business is not complicated. In addition, direct investors do not ask for funding from the state. That is, they are private investors. Further, commercial banks and third-party organizations can be involved in investment. This is rare for a closed-end private equity fund, but for the sake of long-term investment it is acceptable.
You can learn how a private equity fund works from the video.
Evgeny Smirnov
Bsadsensedinamick
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Investments
The activities of PEF in Russia are regulated by Federal Law No. 156-F3. Domestic legislation provides for more stringent regulatory conditions for this type of organization than in the US and EU.
The most reliable and safe type of investment are bank deposits. At the same time, if you invest in the largest financial institutions, especially government ones, the risk of losing money is minimal. However, the profitability of deposits is low, often barely covering the level of inflation.
If it is important for you not only to preserve your savings, but also to increase them, banks are not a suitable option. But investing in the stock market, that is, in the stock market, is exactly what will do well. True, the risks here are by no means zero.
Buying shares on a stock exchange with the aim of resell them at a higher price is the most obvious and common type of investing in shares. However, the problem is that the stock exchange trades securities of already well-known stable companies that have gone through the stage of explosive growth and are now developing at a moderate pace or are standing still.
It is much more profitable to buy shares of those companies that are at the very beginning of their rapid growth and have not yet gone through the procedure of public offering of shares on the stock exchange, commonly referred to by the abbreviation IPO. But since their securities are not yet traded on stock exchanges, to purchase them they have to use other, lesser-known instruments, in particular, private equity funds (hereinafter referred to as PEF - Private Equity Fund).
PEF is a special form of collective investment in the purchase of a large block of shares (from 10%) or bonds of companies that have not undergone an IPO. Unlike ordinary speculation on the stock exchange, here shares are bought for a long term, which often exceeds 5-7 years.
By and large, PEF is a type of mutual investment fund (UIF), since its main goal is to make a profit by placing funds provided by investor-shareholders. Therefore, there are many similarities between PEF and mutual funds:
At the same time, PEFs also have a number of specific features that clearly distinguish them from ordinary mutual funds:
In addition to mutual funds, PEFs are often compared to venture funds, since there are also certain similarities in the selection of investment objects, in the organizational structure and level of profitability.
But even in this case the parallel will not be clear, since there are still some fundamental differences:
In terms of organizational structure, PEF is an LLC, which is created for a specifically specified period. Usually this is 7–10 years. The founders of the fund are divided into two unequal categories:
Various large investors act as limited partners. Often these are all kinds of private or hedge funds, as well as insurance companies and pension funds.
Although in theory both legal entities and individuals can act as limited partners in a PEF, in practice most private equity funds are not available to individuals due to too high minimum investment requirements. Otherwise, PEF acts as a typical management company that manages depositors’ money with their permission and in their interests.
Some states also use the concept of “investment partnership”, with the help of which the law distinguishes between portfolio and private investments. Funds operating in these terms may sometimes encounter some difficulties when investing abroad.
For example, in Russia this type of activity is regulated by the section “ Mutual Fund for Qualified Investors”, which prohibits the sale or transfer of shares to third parties. In addition, due to differences in the legislation of individual states, a PEF created according to the rules of the country of its registration may qualify as a venture capital in another country.
Despite all the differences in the legislation of different countries, the generally accepted understanding is this: investments in private equity funds are the purchase of at least 10% of the authorized capital in the form of additionally issued shares or bonds.
PEFs themselves can invest money from shareholders either directly or through portfolio companies, which is a typical practice in the United States and Western Europe. By qualitatively diversifying investments in shares of enterprises from various sectors of the economy, PEF ultimately receives a low level of risk. This allows you to save on your own expert bureau, which analyzes and controls investments.
At the same time, investors’ money can either be invested purposefully or accumulated for investment in a whole package of companies determined in advance. Investment selections are based on both standard valuation techniques (eg EBITDA) and inside information. In the second case, you can make a particularly good investment:
At the moment, there are two main schemes for distributing profits between PEF shareholders:
Due to the fact that the investment object has low liquidity, there are certain difficulties in accurately calculating the current value of a particular investor’s package. In this regard, difficulties arise both with the early withdrawal of an individual shareholder from the project, and with the sale of the entire package owned by PEF.
After the expiration of the period for which the fund was created, the question arises of how exactly to convert shares or bonds into real money, from which the profit of shareholders-investors will be paid. Typically PEF implements one of the following scenarios:
The activities of PEF in the Russian Federation are regulated by Federal Law No. 156-F3 “On Investment Funds”. Domestic legislation provides for significantly more stringent regulatory conditions for this type of organization than in the United States and European countries. Especially when it comes to financial reporting and independent audit issues.
