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Renaissance Equity Fund Raises $660M

Catrina Stewart
The Moscow Times
19 March 2008

Renaissance Group said Tuesday that it had raised $660 million for its first private equity fund, as investors sought greater exposure to Russia amid the turmoil on global financial markets.

The group, which owns investment bank Renaissance Capital, said it would "pursue control and significant-influence investments" in Russia and the former Soviet Union.

International markets have been battered in recent months by a growing loss of confidence in the financial sector and fears of a global slowdown. In the West, this has translated into a weakening of private-equity activity, with many leveraged deals canceled, while emerging markets have continued to attract strong support.

Renaissance's fund managers initially planned to raise $500 million, but the fund was oversubscribed, Dmitry Kryukov, managing director of Renaissance Private Equity, said by telephone.

"The reaction [from investors] was very, very positive," he said. "There was so much demand, we decided to upsize the fund."

Renaissance said it had committed around 40 percent -- equivalent to $264 million -- to the fund. The other investors are primarily institutional investors, funds of funds, and family trusts.

The fund has already acquired stakes in two companies in the media sector and hopes to capitalize on the country's consumer boom and growing middle class, Kryukov said.

Private equity has brought impressive returns in Russia over the past five years, said Benjamin Wilkening, a partner at private-equity firm Mint Capital. Organic growth rates over the past year, he said, ranged from 30 to 100 percent.

Baring Vostok, one of the most-established players on the Russian market, last year announced a new $1.5 billion fund, and Troika Dialog is raising money for a $1 billion fund.

But for global private-equity firms more comfortable with highly leveraged deals in large companies, it has been tougher to break into the market. Carlyle Group, the world's largest private-equity firm, which was rocked by the collapse of one of its funds last week, is arguably the best-known company to fail in its efforts to tap into Russia.

"Russia is a very specific market," said Kryukov. "It's not possible to do transactions sitting in New York or London. You need to be on the ground, you need to know the people, you need to know the rules of the game. ... These are all quite localized skill sets."

Wilkening agreed, noting that there was growing interest from larger, Western funds, which try to do leveraged deals involving larger companies.

"I am not sure the Russian economy or the Russian corporate landscape is ready for that type [and size] of private-equity deal," he said.

Mint, which runs two funds, expects to start fundraising for a third fund of $300 million to $500 million in the next few months, Wilkening said, adding that there had already been a high level of interest from investors.

"Most people realize to what extent the Russian economy is insulated [from the global crisis]," he said. "There is also a lot of domestic demand driving the economy ... [and] the Russian currency is extremely strong."

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