The most reliable and safe investment instruments are bank deposits in large credit institutions and government bonds. However, interest rates on such risk-free investments barely offset the official inflation rate. The natural consequence of this situation is the desire for free capital to find more efficient niches. There is no particular hope for strong growth of companies already holding a high position in the stock rating. Private equity funds fill this gap. Many sectors of the economy have the potential to generate high returns, but these attractive opportunities are inevitably associated with serious risks.
General concept
In accordance with international terminology, direct investment refers to cash investments in commercial companies in order to obtain direct control over their business operations. The size of the share of the enterprise, which allows for management and to influence decision making, is at least 10%. Direct investments, in contrast to speculation in securities on exchanges, are designed not for short-term financial benefits, but for long-term participation in business development (time horizons often exceed 5-7 years). Organizations on the list of private equity funds in Russia are usually inaccessible to individuals due to the high minimum capital requirements.
Mechanism of work
Funds are invested in real assets of companies: equipment, infrastructure, real estate, technology, as well as intellectual property and staff training. In domestic business circles, there is a noticeable interest in this form of capitalization. This is not to say that private equity funds are a growing phenomenon. enterprises new and unusual. In the past, there were many examples of successful and mutually beneficial financing of Russian companies by both foreign and domestic capital. The following organizations are included in the list of private equity funds in Russia:
- Bearing East Capital Partners.
- "Delta Private Equity Partners."
- Troika Capital Partners.
- Alfa Capital Partners.
- Mint Capital.
In most cases, foreign financial institutions become minority shareholders, acquiring relatively small equity holdings of domestic companies, which limits the ability to influence the adoption of strategic decisions that determine the future of the business.
Features of funds in Russia
In the Russian Federation, there are government agencies at the federal and regional levels, whose responsibilities include working to raise capital for the implementation of commercial projects of a national scale. Domestic financial organizations occupy a significant place in the list of private equity funds in Russia. The average volume of investments in a developing business amounts to tens of millions of US dollars. Given this fact, it is difficult to overestimate the role of funds specializing in financing large projects. Such a minimum threshold for entering the business is not available even for many banks.
Such organizations exist in the form of closed-end mutual investment funds in Russia. The list includes many management companies with state participation. The process of direct financing of a business is regulated by federal law. Over the past two decades, the provisions regarding funds have been revised more than once.For example, restrictions were imposed on the participation of foreign capital in such sectors of the economy as natural gas production, forestry, and transportation services. Under the complete ban turned out to be the financing of funds registered abroad by enterprises related to the defense industry and national security. The Ministry of Economic Development is responsible for developing public policy on investors.
Venture capital funds
The name of this type of financial institution comes from the English word for risk. The concept of venture capital funds in many aspects is close to direct investment. Both strategies are based on the idea of capitalizing non-public commercial companies whose shares are not freely traded on stock markets. However, there are a number of differences. Venture capital funds seek to invest in small businesses engaged in high-tech and knowledge-intensive development at the very early stages of their development. If successful, profits can exceed many times the invested money.
The risks
After the advent of the era of computers, information technology and social networks, the business world saw many examples of fantastically high returns on investments in companies that started their activities from a literally zero level. But the risk inherent in such a capital investment strategy is extremely high. According to statistics, about 80% of projects financed by venture funds end in complete failure. The secret to success is asset diversification. Funds, following the golden rule of laying eggs in different baskets, invest their funds simultaneously in a large number of developing promising companies. The return on 20% of successful projects not only covers losses, but also makes a profit.
Differences
Private equity funds are characterized by a more cautious approach to doing business. They adhere to a number of strict restrictions when choosing objects for financing. Like venture capitalists, private equity funds are looking for innovative enterprises with the potential for rapid growth. The fundamental difference is that they invest their money only in companies that already have proven technologies, but are in dire need of additional funding to expand their businesses.
Russian Venture Funds: Results and Prospects
The domestic market of high-risk investments in the course of its evolution went through several stages and experienced certain ups and downs. Legislative regulation of this form of financing was introduced in 2002. A few years later, the Ministry of Economic Development founded the Russian Venture Company with one hundred percent state participation in the authorized capital. Its main areas of activity are nanotechnology, energy conservation and environmental management.
The Russian venture capital investment market quickly moved away from the shock caused by the global financial crisis of 2008. Fixed investment funds and companies were not affected. The market returned to the stage of sustainable growth in just a couple of years. In 2013, Russia ranked fourth in Europe in terms of investments in enterprises related to the high-tech industry. The situation has changed dramatically for the worse after the introduction of economic sanctions against the Russian Federation. According to experts, the political crisis caused a strong recession in the field of risky investments in the long run, and the prospects for Russian venture funds today remain uncertain.
RDIF
At the initiative of the government, a structure was created that plays the role of a catalyst in attracting capital. The Russian Direct Investment Fund was founded in 2011. Its reserves amount to 10 billion dollars. RDIF collaborates with large international organizations included in the list of private equity funds in Russia.He managed to attract more than $ 30 billion to the Russian economy. Further prospects largely depend on the development of the political situation in the world.