Baring Vostok, the Russian private- equity firm co-founded by former Salomon Brothers oil banker Michael Calvey, has raised $1.5 billion, the largest amount amassed for deals in Russia.
Baring Vostok, whose biggest office is in Moscow, secured $1.15 billion of commitments for its fifth main fund, Baring Vostok Private Equity Fund V LP, and $350 million in a co- investment fund, Calvey, 45, said in an interview. This is more than the $1.3 billion raised in 2007 and more than the firm’s initial target of $1.3 billion as it reached the limit of investor pledges, or hard cap, he said.
Baring Vostok, headed by U.S.-born Calvey, Alexey Kalinin and Elena Ivashentseva, is one of a handful of private-equity firms that have attracted international backing for Russian investments as investors prefer emerging markets such as China or Brazil over Russia, which is still perceived as riskier and more corrupt. Russia ranked 143rd out of 183 countries in the 2011 corruption perceptions index published by Transparency International. China ranked 75th and Brazil 73rd.
“Many investors view Russia principally through what they read or see in the news, which is mostly about politics,” Calvey said. “The investors who dig deeper and visit the country can see for themselves the dynamic business environment and high quality of local entrepreneurs.”
The $1.5 billion Baring Vostok raised compares with $82 million amassed for private-equity deals in Russia in the first half of this year and $135 million in 2011, according to data compiled by the Washington-based Emerging Markets Private Equity Association. It compares with $7.08 billion raised for Brazil and $16.6 billion for China last year, according to EMPEA. Baring Vostok’s main competitors aren’t typical private-equity firms, rather state-owned banks and oligarchs, Calvey said.
“This could be a real ice-breaker for other funds,” Andreas Boesenberg, deputy global head of private equity at VTB Capital, said by phone. “It seems we might be entering a new cycle as we are seeing increasing unsolicited interest in Russia from fund investors and direct investors.”
VTB Capital partnered with Texas-based TPG Capital, one of the few global buyout firms with a presence in Russia, to acquire control of supermarket chain Lenta LLC in 2011 for $1.1 billion after a yearlong dispute with another shareholder. Blackstone Group LP (BX:US), the world’s largest private-equity firm, last year named Dmitry Kushaev as its senior adviser in Russia. VTB Capital, a unit of the nation’s second-biggest lender, is “watching the space” for fundraising, Boesenberg said.
Russia’s government, seeking to diversify the economy away from energy, set up the so-called Russia Direct Investment Fund about a year ago to promote private-equity deals and encourage international firms such as Blackstone and Goldman Sachs Group Inc. to invest with it. The effort has generated increased interest in Russia from international buyout firms, less so from limited partners, Calvey said.
Baring Vostok was started in 1994 as a joint venture between Baring Asset Management and Sovlink, a Russian-American merchant bank, and has since made about four times its money for investors on average, Calvey said. Fund III, raised in 2004, is marked up at 2.5 times the investments and Fund IV, from 2007, is valued at 1.4 times, he said.
The firm’s investments include stakes in oil and gas exploration company Volga Gas Plc (VGAS) and Yandex NV (YNDX:US), operator of Russia’s most popular Internet search engine, which was listed on the Nasdaq Stock Market last year.
Baring Vostok took longer than the previous time to raise its latest fund - about a year - and attracted 10 new investors in the U.S., the Middle East and Asia out of 42 as some U.S. pension funds decided not to invest again or at lower amounts, Calvey said. Some public pension funds had reached their allocation to private equity, he said. About 80 percent of existing investors committed to the new fund for a similar amount on average, compared with 90 percent of existing investors for Fund IV, Calvey said.
Two of the dropouts include the California Public Employees’ Retirement System and the Pennsylvania State Employees’ Retirement System.
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