Russia may outsource sovereign funds management - paper

MOSCOW Mon Feb 4, 2013 8:53am GMT

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MOSCOW (Reuters) - Russia's Finance Ministry may hire private companies to manage part of the country's fiscal reserves, Deputy Finance Minister Sergei Storchak wrote in business daily Vedomosti on Monday.

Storchak said that three Russian investment banks - VTB Capital (VTBR.MM), Troika Dialog and Renaissance Capital (RNCG.PK) could qualify as fiduciary managers, as they are "leaders on the market of such operations."

Troika Dialog was rebranded as Sberbank CIB last year following its acquisition by Sberbank (SBER.MM) , Russia's largest bank

The deputy finance minister added that there were several leading foreign companies that could also qualify, but he did not name any.

"Sometimes such specialised services can significantly increase the returns from placing (funds) without a loss of reliability," Storchak wrote.

The proposal comes as Russia is mulling ways to improve the management of its fiscal reserves, presently worth $175.6 billion (111.7 billion pounds), which are divided between two sovereign funds, the Reserve Fund, now worth $86.3 billion, and the National Welfare Fund, worth $89.3 billion.

The plan to hire outside managers is envisaged in a law under debate in parliament that will create a new government agency, called Rosfinagenstvo, responsible for managing the two sovereign funds and Russia's debts.

At present, the two sovereign funds are deposited in foreign currency accounts at the Russian central bank and are managed in the same way as the foreign exchange reserves. They are mostly invested in low-risk bonds of western governments, leading to criticisms over its conservative investment strategy.

Last year, the funds invested in dollars received a return of 0.33 percent, while funds invested in euros generated a 1.09 percent return, Storchak wrote.

As well as boosting returns, the creation of Rosfinagenstvo is also intended to enable a greater share of the sovereign wealth funds to be invested inside Russia.

Storchak wrote that while all of the Reserve Fund should still be invested abroad, it would be possible to invest 30-40 percent of the National Welfare Fund at home. Around 25 percent of the latter fund is already invested domestically as it is deposited on accounts at development bank Vnesheconombank (VEB).

Some Russian officials, including the economy ministry, argue that Russia should use its sovereign funds to finance badly-needed infrastructure investments and boost Russia's capital markets.

However, the finance ministry is concerned that investing the funds domestically would add to macroeconomic instability and financial risk.

"The Reserve Fund and the lion's share of the National Welfare Fund shouldn't be invested domestically, in order to avoid strengthening of the rouble or inflation and also the creation of a stock market bubble," Storchak wrote.

(Writing by Jason Bush; Editing by Lidia Kelly/Jeremy Gaunt)

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