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PE’s Appetite for Russian Deals Increasing

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October 29, 2012

Russia and the CIS region have become more attractive to foreign PE funds compared to the first quarer, and now rank fifth pushing out Africa in the E&Y PE Capital Confidence Barometer survey. More than 48% of the 100 foreign PE funds survey say they plan to deploy more capital in Russia.

 

A number of factors are driving PE’s interest in Russia, specifically its 4% growth rate, underpinned by strong domestic consumer spending from the emerging middle class in Russia.

 

Russia has a nascent PE industry relative to some other emerging markets, says the Barometer report. In 2012 to date, less than US$500 million of deals have been done in Russia, while India has seen about 6 times as much investment as has Russia/CIS and China has had 13 times as much.

 

Challenges for Russian dealmaking include lack of political transparency, legislative and administrative issues. An apparent shortage of good-quality large assets makes the country less attractive to larger funds’ investment strategies.

 

Changes are taking place that should improve PE prospects, according to the report. The Russian government is working on improving the perception of Russian PE, including the creation of the Russian Direct Investment Fund (RDIF).

 

Russia also recently joined the World Trade Organization. The investment culture is improving, and a track record of successful deals is encouraging PE interest. These developments should act to boost the growth of PE in the country.

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