It seems a very long time ago now that Russian clients regarded foreign banks, and in particular Swiss banks, with the deference and humility of explorers entering unknown territory. Whereas these clients barely knew how a credit card worked ten years ago, they have since learned to decipher complex structured products and understand their workings. Unlike those who lived off the fat of the land, these new investors, many of which have mathematical backgrounds, have studied the new financial theories with the pugnacity of warriors with something to prove. Today, they know how to compare services and demand the best, and above all, they have lost the inferiority complex in financial matters that was born out of decades lived under a forced contempt of capitalism.

The thorny question facing these new investors today is whether it is worth their while investing in markets that are becoming increasingly harder to anticipate, given that they have near-endless investment opportunities at home with higher returns than any bond or stock can offer (and less volatility). It should be made clear that these investors are not all "oligarchs", sitting on countless barrels of gas and oil. Most of the time, they are entrepreneurs: one may have created a bottling factory, another may have founded a network of travel agencies, while a third may have developed a software application for the financial sector. Of course, real estate remains a safe asset for many, but all are interested in investment projects. The incentive to reinvest is all the greater now that the country seems to be heading toward a stable and above all predictable political situation. With a current Ba2 rating from S & P, Russia could be among the world’s five leading economies by 2020 (if it maintains an annual growth rate of 6-7%). Not to mention the fact that these new Russian investors are familiar with the country’s rules and workings, as it is their home.

National Wellbeing Fund

But where does Russia, as a nation, invest its bountiful oil wealth? Finance Minister Alexei Kudrin recently highlighted the creation of a National Reserve Fund, which reached USD 127 billion on February 1, and of a National Wellbeing Fund, totaling USD 32 billion. Both funds emerged from the split of the Stabilization Fund created in 2004. Although their purpose is to preserve the national public reserves, nothing prevents them from buying shares abroad.

When it purchased 5% of shares of the French group EADS from Vneshtorgbank, the development bank Vneshekonombank, whose capital belongs to the Russian state, proved that Russia is interested in investing in the West. Thus, it cannot be ruled out that Russian monies, from public as well as private funds, may be invested in foreign shares. Considering that UBS appealed to the Sovereign Fund of Singapore, among other potential liquidity providers, it is not far-fetched to imagine that Russia might become a minority shareholder in a Swiss bank or company one day. Despite the initial reticence of Western countries, these investments may now be welcomed as a gift from heaven if the mortgage-related liquidity crisis intensifies.

Daria Mihaesco,
Head of Eastern Europe in French-speaking Switzerland at Lombard Odier Darier Hentsch