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. Last Updated: 07/27/2016

Delta Sees End of 'Foreign Investors'

Delta Fund, a multimillion-dollar private equity fund set up by the U.S. government to promote investment in Russia, said Tuesday that Russian industrial groups are at long last moving into direct investment and predicted there would be no such thing as a "foreign investor" in a couple of years.

"In the past, private equity has been seen as a foreigners' game and foreigners' territory, but very quietly Russian investors have entered this market," Delta Fund president David Jones said.

"I predict that in two or three years, the expression 'foreign investor' will disappear and we will all become just 'investors,' which is good for all of us in the end," Jones said.

Delta Fund was launched as the U.S.-Russia Investment Fund in 1995 with a $440 million grant from the U.S. Congress. Since then, some $200 million has been invested into more than 30 companies. The fund is managed by Delta Capital , which was set up in 1999.

Delta Fund -- which controls DeltaCredit, Delta Leasing and DeltaBank -- focuses on financial services. It also has invested in media, including CTC and TV3 television and StoryFirst Communications; consumer goods and retail companies, including beer major Sun Interbrew and supermarket chain SPAR Moscow; and high-technology.

A number of direct equity funds, some managed by financial giants Templeton and Framlington, were active before the 1998 financial crisis. Then they paid back their shareholders and left.

Jones said that despite the big gains on the stock market over the past few years, foreign investors have shied away from direct investment in smaller, privately held companies, citing corporate governance risks. "We were left almost alone in the market after the crisis, which gave us an opportunity to start several new projects and successfully exit existing ones," he said.

Delta Fund has left six companies since 1998 and posted an average 20 percent rate of return on original investment, Jones said. The most recent sell-offs were Lomonosov Porcelain Factory, which Delta sold to NIKoil financial group, and the Saint Springs water company, which was sold to Switzerland's Nestle Group.

Other foreigners only re-entered the private equity market in January of this year, with Baring Vostok Capital Partners launching a $205 million fund to manage direct investments.

Since then, the major news has come from local players.

Alfa Group this year teamed up with Vostok Nafta, led by Swedish energy magnate Adolf Lundin, to create the $200 million Russian Resources Fund.

Rival MDM Bank said it manages its MDM Group as a private equity fund.

The Interros holding, headed by Vladimir Potanin, has begun investing in various sectors, while NIKoil and United Financial Group have also announced plans to expand into direct equity.

But foreign and local fund managers have different goals, said Alexander Branis, head of Prosperity Capital Management, which has $240 million in Russian assets.

"Foreign funds usually never buy controlling stakes in the companies, and their main goal is to sell the company to the strategic investor," he said. "By contrast, Russian firms are interested in gaining control over the company and selling it only in the longer-term."

Branis said that in the end there is room for both local and foreign funds.