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Raising Funds from Private Pension Funds To Solve the Problem of Capital Sources in the Venture Capital Market

24.09.2020

On September 23, the 12th Russian Private Equity Congress and the 8th Venture Investors Forum took place in Moscow. RVC supported the event as an official partner. Representatives of development institutions, venture funds, and the regulator discussed the necessary steps for the growth of the private equity and venture capital industry in Russia, including removing barriers to entering a new class of institutional investors into the market.

In the plenary discussion, Deputy General Director — Investment Director of RVC Alexey Basov noted that changes in the venture capital market are much-needed since the divide between the venture business and private equity has disappeared.

“This trend is happening all over the world. And no one is an exception here, including RVC. We position ourselves as a pure venture capital company operating exclusively in the early financing stages. We are also interested in the later stages,” Basov said.

There are many directions in which the regulator and market participants must move to restart Russia's venture capital industry. The first direction is the reform of such a most common legal form among investors as an investment partnership.

“This is an excellent form, but it contains several childhood illnesses and built-in defects that we need to overcome, including the inability to participate on the part of individuals, a ban on owning shares in another investment partnership, excessive risks for the tax base,” said Alexey Basov.

The second area of work should be the removal of constraints faced by development institutions.

“There are many states on the Russian market; they weigh a lot both in terms of money and regulation. The needs of the state as a market player determine the landscape of this very market. At the same time, the impossibility of state institutions to fully structure themselves in English law cuts off many foreign investors from our market,” said Alexey Basov, calling the problem “more mental than legal.”

The third area could be attracting funds from non-state pension funds (NSPF) to the investment market. This will mostly solve the problem of the source of capital in the domestic market. Simultaneously, we are not talking about investing pensioners' monetary funds in extremely high-risk start-ups since a balanced portfolio approach has long existed in world practice.

“To make this a reality, some reforms are needed, including a change in the methodology for stress testing of assets and the introduction of an institution for accrediting managers,” the expert emphasized.

The Forum participants also discussed the consequences of the pandemic for the national venture capital market. The main conclusion of the discussion is that COVID-19 did not critically impact the PE&VC sector in Russia. In the spring of 2020, there was a global slowdown in investment transactions, but now all players have adjusted to the current realities.

“The dust has not completely settled, but we already understand what is happening with our portfolio, we understand how we will distribute our technical and financial resources shortly,” said Mikhail Fedotov, director of RVC subsidiaries.

At the same time, according to Fedotov, the effect of the global crisis has not yet fully manifested itself. Despite a large number of transactions, high investment activity, and record volumes of Dry Powder in the world and Europe, in the current environment, there is a risk that not all participants in investment processes will fully fulfill their obligations.

Anatoly Chubais, CEO of RUSNANO Management Company, Alexander Galitsky, Managing Partner of Almaz Capital Partners, Vladimir Sakovich, General Director of Skolkovo Ventures, Alexander Lupachev, Director of Russia Partners Advisers, Oleg Tenetnik, Head of the Financial Market Development Department of the Department of Strategic Development of the Financial Market of the Central Bank of the Russian Federation, managing partner of Terra VC Petr Lukyanov, investment director and head of M&A Mail.ru Group Alexey Milevsky, managing partner of LETA Capital Alexander Chachava and others took part in the Forum discussions.



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