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. Last Updated: 07/27/2016

Baring Sets Up $1Bln Fund

APCadets in Cossack uniform singing as they march during an annual competition of cadets in Moscow on Wednesday.
Baring Vostok Capital Partners on Wednesday launched a new private equity investment fund worth $1 billion in committed capital, focused on Russia, Ukraine and Kazakhstan.

The announcement comes as a fillip for Russian equities in the wake of last month's global markets correction that saw some fund managers re-examine their exposure to emerging market risk.

One of the largest Russia-dedicated equity funds, Hermitage Capital Management, last week announced it was starting a new fund for existing clients that will take its focus from Russia to other emerging markets. Hermitage CEO William Browder has been barred from Russia since November 2005 in what some analysts have seen as a response to the company's campaigns for shareholder rights in closely-held oil firm Surgutneftegaz and other companies.

Baring Vostok said Wednesday that institutional investors in Europe, North America, the Middle East and Asia had provided the new fund's capital.

"The medium-sized businesses on which we focus are growing fast, generating strong profit margins, and are generally not exposed to the political risks that have impacted some of the country's largest companies," Michael Calvey, co-managing partner of Baring Vostok, said in a statement. "Russia and the CIS remain challenging markets in many respects, but the returns on investment are very attractive and compare favorably with most other countries or regions."

The fund, which will be one of the biggest dedicated equity funds in Eastern Europe, is the fourth for Baring Vostok, which has invested in financial services, consumer products, media, telecoms and oil and gas since founding its first fund in Russia in 1994.

Baring Vostok has been involved in the development of such companies as VimpelCom, Burren Energy, Syktyvkar Forestry, Golden Telecom, CTC Media, Borjomi, Yandex, Gallery Group and Bank Caspian.

CTC television, an entertainment-only channel in which billionaire Mikhail Fridman's Alfa Group owns a stake, is Baring Vostok's most successful business in Russia.

It bought into CTC Media in 2001 and introduced management reforms that catapulted the channel into one of the most-watched in Russia.

Another big winner for Baring was its $3 million acquisition in 2000 of a controlling stake in Ozon.ru, a pioneering e-commerce web site which has since led the way in the commercial development of the Russian Internet.

Baring Vostok also acquired Internet portal Yandex in 2000. Yandex earned nearly $50 million last year.

Private equity capital has been attracting a lot of funds over the last year, analysts said, in part because of strong signals from the government urging the need to diversify the economy away from oil and gas.

"The boost in the activities of private equity funds is a big help to many sectors of the economy not yet well enough represented in the stock market to acquire capital for growth," said Chris Weafer, chief strategist at Alfa Bank.

It is also a "very strong reflection of investors' confidence in the new wave of development sweeping across Russia -- in aviation, technology, and construction -- that the government has made priority areas," Weafer said.

Baring Vostok's performance "is an indication that Russia remains very attractive for investors, who see the need to diversify and invest in other sectors of its economy apart from oil and gas," said Alexei Goryayev, an economics professor at the Center for Financial and Economic Research.

"There is a strong appetite for investment funds in other sectors of our economy, a niche which Baring Vostok fills by targeting new companies unshackled by the Soviet past and remodeling and modernizing them," Goryayev said.