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Cablegate: Russian Sovereign Wealth Fund Investment Rules, Part I

VZCZCXRO6078
RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHMO #0141 0181322
ZNR UUUUU ZZH
R 181322Z JAN 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 6212
INFO RUEHLO/AMEMBASSY LONDON 2079
RUEHFR/AMEMBASSY PARIS 1886
RUEATRS/DEPT OF TREASURY WASHDC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS MOSCOW 000141

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EUR/RUS, EEB/IFD
LONDON ALSO PASS TO EBRD/US MISSION
PARIS TO OECD/US MISSION
TREASURY FOR TORGERSON

E.O. 12958: N/A
TAGS: EFIN ECON RS
SUBJECT: RUSSIAN SOVEREIGN WEALTH FUND INVESTMENT RULES, PART I


1. (U) On January 9, Prime Minister Viktor Zubkov signed a
government resolution that sets the investment parameters for part
of the country's sovereign wealth fund. On February 1, the GOR will
divide the current Oil Stabilization Fund into two parts: the
Reserve Fund and the National Prosperity Fund. As of January 1, the
Stabilization Fund reached RRub 3.85 trillion (USD 157 billion),
exceeding the Finance Ministry's December estimate that the Fund
would grow to RRub 3.8 trillion (USD 155 billion) by February 1.

2. (U) The January 9 resolution outlines the investment types and
limits affecting the disposition of Reserve Fund assets. The
investment categories are:

--Foreign-currency, interest-bearing accounts at the Central Bank
(CBR);
--Sovereign bonds of 14 developed countries (including the U.S.,
U.K., Canada and some European countries), whic will account for a
minimum of 50 percent of Reserve Fund assets;
--Bonds of foreign government agencies, which will account for a
maximum of 30 percent of assets;
--Bonds of 8 selected international financial institutions will
account for a maximum of 15 percent of assets; and
--Deposits in foreign credit institutions, which will account for a
maximum of 30 percent of assets.

2. (U) Eligible bonds will be denominated in US dollars, euros, or
British pounds sterling with fixed maturities and coupon rates and
be non-callable. The resolution requires the issuer to have a
long-term credit rating of at least AA- on the S&P and Fitch-Ratings
scales, and Aa3 on Moody's. Reserve Fund managers will need to
purchase publicly traded bonds in lots not less than USD 1 billion,
Euros 1 billion or BrP 500 million. The rules also prohibit
purchasing any single bond issue whose nominal value exceeds 15
percent of the Reserve Fund's total bond holdings. In similar
fashion, no single bank deposit may exceed 25 percent of total
Reserve Fund assets invested in foreign bank deposits.

3. (U) The rules for Reserve Fund assets management appear to be
almost as conservative as the rules for Stabilization Fund
management. For example, Stabilization Fund rules stipulated that a
sovereign bond issuer needed the top rating from all major credit
rating agencies for the obligation to be eligible as an investment
instrument. The rules for investing National Prosperity Fund assets
remain pending but are expected to allow investment in corporate
securities.
BURNS

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