Fri | Aug 17, 2018

Blackstone calls it a day in Russia after sanctions freeze investor appetite

Published:Wednesday | September 24, 2014 | 12:00 AM

Henny Sender in New York and Anne-Sylvaine Chassany in London

US private equity group Blackstone is giving up on Russia, highlighting how even well-connected western investors are shying away from the country after the annexation of Crimea.

US and European sanctions against Russian individuals close to the Kremlin, as well as state-backed industrial and banking groups - imposed after the annexation and for Moscow's role in the Ukraine crisis - have led to a freeze in western investments in the country.

However, Blackstone's decision was also prompted by a failure to find suitable investments, a person with knowledge of the matter said. "In the good times, Blackstone couldn't find anything to do and in the bad times, Blackstone can't imagine doing anything."

The buyout group has been frustrated in its attempts to find deals in the country since its co-founder Stephen Schwarzman joined the international advisory board of the Russian Direct Investment Fund, a US$10b government-backed fund, three years ago.

At that time it hired Dmitri Kushaev, the former head of investment banking at ING in Russia and a former private equity executive, as senior adviser to assist on deals in the country.

But Blackstone, which does not have an office in Russia, has chosen not to renew the contracts of consultants in the country. According to the person familiar with the matter, the move will bring to an end Blackstone's embryonic attempts to break into Russia.

Blackstone declined to comment.

This month, DMC Partners, a private equity firm founded by three former Goldman Sachs executives, including the bank's former Moscow chief, was shut down after failing to raise a planned US$2b fund. The decision was mainly due to investors' reluctance to invest in Russia.

The European Bank for Reconstruction and Development, which has backed some of Russia's most successful private equity groups in the past three decades, including Baring Vostok in Moscow, has also suspended investments in the country.

International buyout groups were wary of Russia even before Moscow annexed Crimea fearing corruption, political interference and a complex judicial system.

US group Carlyle has retreated from the market twice - the last time in 2005 - saying that the returns were not worth the risks.

(c) 2014 The Financial Times Ltd