THE MINISTRY OF FINANCEOF THE RUSSIAN FEDERATION

Investment management

Management objectives

Management of National Wealth Fund aims at capital preservation and stable level of return in long-term perspective. In pursuing aforementioned purposes asset management allows possibility of negative return in short-term period [1].

Governance structure

Management of NWF assets is executed by the Ministry of Finance of the Russian Federation in accordance with procedure and terms established by the Government of the Russian Federation. Bank of Russia may act as operational manager. In case specialized financial entities are engaged to exercise particular functions related to management of NWF assets then the Government establishes terms of such engagement and requirements to such entities [2].

NWF assets can be invested in following ways (in one or all of them simultaneously)[3]:

1) purchase of foreign currencies (US dollars, euro, GB pounds) and allocation to the Federal Treasury’s accounts with the Bank of Russia which pays interest on them according to bank account agreement;

2)purchase of foreign currencies and financial assets denominated in Russian ruble and eligible foreign currencies (further – eligible financial assets).

The Fund assets are invested according to the first alternative (allocation to the Federal Treasury’s accounts with the Bank of Russia) in the following way. According to calculation and transfer procedure of interest payments approved by the Ministry of Finance the Bank of Russia pays interest equivalent to yield of total return indices comprised of financial assets complying with requirements approved by the Government of the Russian Federation.

Investment Guidelines

The Government determines broad limits of strategic asset allocation of NWF. In order to enhance efficiency of management the Ministry of Finance is authorized to establish strategic asset allocation within the limits determined by the Government.

Eligible financial assets enacted by the Budget Code of the Russian Federation [4]

Limits determined by the Government of the Russian Federation [5]

Regulatory shares of eligible financial assets established by the Ministry of Finance[6]

in foreign currency [7]

in Russian rubles [8]

Debt securities of foreign states

0-100 %

90 %

0 %

Debt securities of foreign state agencies and central banks

0-30 %

0 %

0 %

Supranational debt securities

0-15 %

0 %

0 %

Deposits in banks, depository institutions and State Corporation “Bank of development and foreign-economic activity (Vnesheconombank)”

0-40 %

10 %

100 %

Deposits in the Bank of Russia

0-100%

Debt securities of legal entities

0-30 %

0 %

0 %

Equities of legal entities and shares of investment funds

0-50 %

0 %

0 %

Government of the Russian Federation established following requirements to the mentioned financial assets [9]:

1.     NWF assets can be invested in debt securities of foreign states, foreign state agencies and central banks of following foreign states [10]:

·     Austria;

·     Belgium;

·     Canada;

·     Denmark;

·     Finland;

·     France;

·     Germany;

·     Luxembourg;

·     the Netherlands;

·     Spain;

·     Sweden;

·     the United Kingdom;

·     the USA.

2.     Debt securities shall comply with the following terms:

  • foreign issuer of debt securities shall have a long-term credit rating AA- or higher according to scale of rating agencies Fitch Ratings and Standard and Poor’s, or Aa3 or higher according to classification of rating agency Moody's Investors Service. In case the issuer has different ratings by mentioned agencies then the lowest of them shall be applied;
  • Russian issuer of debt securities shall have a long-term credit rating BBB- or higher according to scale of rating agencies Fitch Ratings and Standard and Poor’s, or Baa3 or higher according to classification of rating agency Moody's Investors Service. In case the issuer has different ratings by mentioned agencies then the lowest of them shall be applied;
  • debt securities shall have fixed maturity date, shall not be redeemable or callable;
  • debt securities of foreign issuers shall have no put option;
  • requirements related to maturity of debt securities set by Ministry of Finance are mandatory;
  • coupon rates and face values of debt securities shall be fixed;
  • face value of debt securities shall be denominated in rubles, US dollars, euro or GB pounds, payments related to debt securities shall be made in currency of face value;
  • outstanding amount of issue of debt security shall be not less than 1bln.rubles for debt securities denominated in Russian rubles  $1bln. for debt securities denominated in US dollars, not less than 1bln. euro for debt securities denominated in euro and not less than 0.5 bln. GB pounds for debt securities denominated in GB pounds;
  • Not for private placement.

 3.     NWF assets can be invested in supranational debt securities of following institutions:

-         Asian Development Bank (ADB);

-         Council of Europe Development Bank (CEB);

-         European Bank for Reconstruction and Development (EBRD);

-         European Investment Bank (EIB);

-         Inter-American Development Bank (IADB);

-         International Bank for Reconstruction and Development (IBRD);

-         International Finance Corporation (IFC);

-         Nordic Investment Bank (NIB).

4.     NWF can invest in equities of legal entities or shares of investment funds that comply with the following requirements:

-         equities shall be listed at least on one exchange;

-         foreign equities must be included in MSCI World Index and FTSE All-World Index;

-         Russian equities must be included in MICEX Index or RTS Index;

-         assets of investment funds must be only constituent of eligible financial assets.

5. Depositing NWF assets in banks and depository institutions shall comply with the following requirements:

- bank or depository institution shall have a long-term credit rating not lower than AA- level according to scale of rating agencies Fitch Ratings and Standard and Poor’s, or not lower than Aa3 level according to classification of rating agency Moody's Investors Service. In case the bank or depository institution has different ratings by mentioned agencies then the lowest of them shall be applied;

- requirements related to minimum and maximum deposit period in banks and depository institutions set by Ministry of Finance are mandatory.

6. Allocation of NWF assets to deposits in Vnesheconombank shall comply with the following requirements:

a. currency of deposit can be Russian ruble, US dollar, euro or GB pound;

b. maximum overall amount that can be deposited in Russian rubles is 955 bln. rubles under following conditions:

- up to 175bln. rubles can be deposited according to the terms stipulated by the Ministry of Finance [11];

- up to 410 bln. rubles can be deposited according to the terms established by the Government of the Russian Federation under following conditions [12]:

·        till 31 December 2019 at an annual rate of 6.25%;

·        till 31 December 2020 at an annual rate of 7.25%.

- up to 40 bln. rubles can be deposited till 1 June 2020 at an annual rate of 6.25% according to the terms established by the Government of the Russian Federation [13];

- up to 30 bln. rubles can be deposited till 31 December 2017 at an annual rate of 6.25% according to the terms established by the Government of the Russian Federation[14].

- up to 300 bln. rubles can be deposited at the latest by 31 December 2012 till           30 December 2022 at an annual rate of 6.25% according to the terms established by the Government of the Russian Federation[15].

Interest payments are executed quarterly. Funds can be redeemed early subject to consent of Vnesheconombank. In case of early redemption the interest is paid for actual period of deposit.

Amounts and terms of allocation are determined by the Ministry of Finance considering mentioned above requirements; all procedures related to allocation of funds to deposits are carried out by Federal Treasury under resolution of Ministry of Finance.

Allocation of National Wealth Fund assets to deposits in Vnesheconombank is published in "Statistics"

7. The Ministry of Finance is authorized to establish additional requirements to eligible financial assets within the limits established by the Government of the Russian Federation.

In compliance with authority vested by the Government of the Russian Federation the Ministry of Finance constituted the following [16]:

1. maximum amount of  NWF assets in Russian rubles – 40%;

maximum amount of  NWF assets in foreign currency – 100%.

2. Currency composition of NWF for assets denominated in foreign currency:

US dollars - 45 %;
Euro - 45 %;
GB pounds - 10 %.

3. Period to maturity of debt securities of the foreign governments and other debt securities eligible to be invested in [17]:

 -  for debt securities denominated in US dollars and euro (except debt securities of the Government of Spain):

Minimum period to maturity – 3 months

Maximum period to maturity – 3 years

-   for debt securities denominated in GB pounds (except debt securities of the Government of Spain):

Minimum period to maturity – 3 months

Maximum period to maturity – 5 years

-  for debt securities of the Government of Spain:

Minimum period to maturity – 3 months

Maximum period to maturity – 1 year.

Aforementioned periods are applicable at the purchase moment or at the moment of setting up indices for calculation of interest payments on Federal Treasury’s accounts with the Bank of Russia.

4. Following list of foreign government agencies – issuers of debt securities eligible for NWF investments (subject to approval by the Bank of Russia [18]):

- Autobahnen- und Schnellstrassen- Finanzierungs- Aktiengesellschaft (ASFINAG), Austria;

- Bank Nederlandse Gemeenten (BNG), Netherlands;

- Caisse d’Amortissement de la Dette Sociale (CADES), France;

- Credit Foncier de France (CFF), France;

-  Dexia Group, France;

- Export Development Canada (EDC), Canada;

- Federal Farm Credit Banks (FFCB), USA;

- Federal Home Loan Banks (FHLBanks), USA;

- Federal Home Loan Mortgage Corporation (Freddie Mac), USA;

- Federal National Mortgage Assosiation (Fannie Mae), USA;

- Instituto de Credito Oficial (ICO), Spain;

- Kreditanstalt fur Wiederaufbau Bankengruppe, Germany;

- Landwirtschaftliche Rentenbank, Germany;

- Network Rail MTN Finance CLG (Plc), Great Britain;

- Oesterreichische Kontrollbank Aktiengesellschaft (OKB), Austria.

5. maximum notional volume of purchased debt securities of one issue:[19]

for debt securities of foreign states - 25% of notional volume of the issue;

for debt securities of foreign state agencies, central banks and supranational debt securities - 5 % of notional volume of the issue. 


 

[1] Budget Code of the Russian Federation, chapter 13.2, article 96.11, clause 2.

[2] Budget Code of the Russian Federation, chapter 13.2, article 96.11, clause 1.

[3] Budget Code of the Russian Federation, chapter 13.2, article 96.11, clause 4, Regulation of the Government of Russian Federation No.18 dated 19 January 2008 “Management of National Wealth Fund assets” (redacted by Regulations of the Government of the Russian Federation No.766 and 597 dated 15 October 2008 and 22 July 2009, respectively).

[4] Budget Code of the Russian Federation, chapter 13.2, article 96.11, clause 4.

[5] Regulation of the Government of Russian Federation No.18 dated 19 January 2008 “Management of National Wealth Fund assets” (redacted by Regulations of the Government of the Russian Federation No.766 and 597 dated 15 October 2008 and 22 July 2009, respectively).

[6] Order of the Ministry of Finance No.26 dated 24 January 2008 (amended by Order of the Ministry of Finance No.563 dated 8 December 2010).

[7] these regulatory shares are applied in order to build-up Indices, used for calculation of interest on NWF assets allocated to foreign currency accounts with Bank of Russia; share of these assets is 100% of overall volume of Fund assets denominated in foreign currency.

[8] these regulatory shares are applied in process of allocation of NWF funds to eligible financial assets denominated in Russian rubles; maximum share of these assets is 40% of overall volume of Fund assets.

[9] Regulation of the Government of the Russian Federation No.18 dated 19 January 2008 “Management of National Wealth Fund assets”.

[10] Regulation of the Government of the Russian Federation No.18 dated 19 January 2008 “Management of National Wealth Fund assets”. Order of the Ministry of Finance No.126 dated      21 March 2011 .

[11] Regulation of the Government of the Russian Federation No.18 dated 19 January 2008 “Management of National Wealth Fund assets”.

[12] Federal law No.173-FZ dated 13 October 2008 “Additional measures to support financial system of the Russian Federation”.

According to Federal law No.206-FZ dated 27 July 2010 and Regulation of the Government of the Russian Federation No.649 dated 24 August 2010 annual rates at deposits in Vnesheconombank were reduced from 7 to 6.25 % and from 8,5 to 7.25%.

[13] Regulation of the Government of the Russian Federation No.18 dated 19 January 2008 “Management of National Wealth Fund assets”.

According to Federal law No.101-FZ dated 22 May 2010 and Regulation of the Government of the Russian Federation No.566 dated 26 July 2010 annual rates at deposits in Vnesheconombank were reduced from 8.5 to 6.25%.

According to Federal law No.12-FZ dated 16 February 2010 and Regulation of the Government of the Russian Federation No.210 dated 1 April 2010 the period to maturity of NWF assets allocated at deposits in Vnesheconombank was increased from 1 June 2015 to 1 June 2020.

[14] Regulation of the Government of the Russian Federation No.18 dated 19 January 2008 “Management of National Wealth Fund assets”.

 [15]  Regulation of the Government of the Russian Federation No.18 dated 19 January 2008 “Management of National Wealth Fund assets”.

According to Regulation of the Government of the Russian Federation No.649 dated 24 August 2010 annual rates at deposits in Vnesheconombank were reduced from 8,5 to 6.25%.

[16] Order of the Ministry of Finance No.24 dated 24 January 2008.

[17] Order of the Ministry of Finance No.25 dated 24 January 2008 (amended by Order of the Ministry of Finance No.125 dated 21 March 2011).

[18] Order of the Ministry of Finance No.22 dated 24 January 2008.

[19] Order of the Ministry of Finance No.112 dated 17 April 2013.

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