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10 Sep, 2008 03:15

National Welfare Fund to invest for longer term and better return

The finance ministry is to put Billions of dollars of Russia’s National Welfare Fund into long term investment at home and abroad. The long-awaited move should bring a stable source of income for the pension fund and could help revive the stock market.

Russia has long pondered how to use its tens of Billions of windfall oil dollars to safeguard the country’s future.  Now, the finance ministry has come up with a plan for investing the money long-term.  Finance Minister Alexei Kudrin says the focus is on returns.

“The National Welfare Fund and the Reserve Fund are currently placed in government deposits by the Central Bank of Russia in 3 currencies.  Currently we aren’t investing these funds, but as they grow we are preparing mechanisms which will allow us to invest them like the Norwegian fund.  At a conservative estimate we expect the return from investing in the worlds markets to be from 4 to 6 percent.”   

The national welfare fund could triple to $100 billion by the end of the year according to deputy finance minister Dmitry Pankin.  Aleksey Moiseev, Head of Fixed Income Research at Renaissance Capital says this could have positive effects on the markets at home, as well as for the pension fund.

“That is exactly something which investors have been hoping for, and, in fact, when rumours of this type of opportunity first appeared, Russian Markets have turned around for a brief period before those rumours actually were denied.  So I am sure that once details appear, and once investors start to see money coming in, this definitely will have a positive effect on the markets.”

The Finance Ministry plans to invest  up to 50% of the fund in stocks, up to 30% in bonds of foreign companies and 5% in direct investments.  Most of the money will be invested long term, for 10-15 years.  But just how much of this money ends up invested in Russian stocks and bonds will depend on the inflation rate, which shot up to an annual rate of 15 percent in August.