RUSSIAN SOVEREIGN WEALTH FUND INVESTMENT RULES, PART I

UNCLAS MOSCOW 000141 SIPDIS SENSITIVE SIPDIS STATE FOR EUR/RUS, EEB/IFD LONDON ALSO PASS TO EBRD/US MISSION PARIS TO OECD/US MISSION TREASURY FOR TORGERSON E.O. 12958: N/A TAGS: EFIN ECON RS SUBJECT: RUSSIAN SOVEREIGN WEALTH FUND INVESTMENT RULES, PART I ¶1. (U) On January 9, Prime Minister Viktor Zubkov signed a government resolution that sets the investment parameters for part of the country's sovereign wealth fund. On February 1, the GOR will divide the current Oil Stabilization Fund into two parts: the Reserve Fund and the National Prosperity Fund. As of January 1, the Stabilization Fund reached RRub 3.85 trillion (USD 157 billion), exceeding the Finance Ministry's December estimate that the Fund would grow to RRub 3.8 trillion (USD 155 billion) by February 1. ¶2. (U) The January 9 resolution outlines the investment types and limits affecting the disposition of Reserve Fund assets. The investment categories are: --Foreign-currency, interest-bearing accounts at the Central Bank (CBR); --Sovereign bonds of 14 developed countries (including the U.S., U.K., Canada and some European countries),whic will account for a minimum of 50 percent of Reserve Fund assets; --Bonds of foreign government agencies, which will account for a maximum of 30 percent of assets; --Bonds of 8 selected international financial institutions will account for a maximum of 15 percent of assets; and --Deposits in foreign credit institutions, which will account for a maximum of 30 percent of assets. ¶2. (U) Eligible bonds will be denominated in US dollars, euros, or British pounds sterling with fixed maturities and coupon rates and be non-callable. The resolution requires the issuer to have a long-term credit rating of at least AA- on the S&P and Fitch-Ratings scales, and Aa3 on Moody's. Reserve Fund managers will need to purchase publicly traded bonds in lots not less than USD 1 billion, Euros 1 billion or BrP 500 million. The rules also prohibit purchasing any single bond issue whose nominal value exceeds 15 percent of the Reserve Fund's total bond holdings. In similar fashion, no single bank deposit may exceed 25 percent of total Reserve Fund assets invested in foreign bank deposits. ¶3. (U) The rules for Reserve Fund assets management appear to be almost as conservative as the rules for Stabilization Fund management. For example, Stabilization Fund rules stipulated that a sovereign bond issuer needed the top rating from all major credit rating agencies for the obligation to be eligible as an investment instrument. The rules for investing National Prosperity Fund assets remain pending but are expected to allow investment in corporate securities. BURNS