National Welfare Fund

Country: Russian Federation

Established: 2008

US$ Billion: $89.6 National Welfare Fund, $142.5 Total

Origin: Oil

Entity Structure: Fund

Transparency Rating: 5*

*The Oil Stabilisation Fund

As of Feb 2008, the Oil Stabilisation Fund will be split into two funds, one section managing official reserves, while the second part becomes the official sovereign wealth fund, National Welfare Fund.

Two Funds:

1. Oil Stabilisation Fund (Reserve Fund)
AUM: $52.9 Billion Reserve Fund
The Oil Stabilization Fund, by law, may only be invested in foreign government bonds. It was established in January 2004.

2. National Welfare Fund
AUM: $89.6 Billion
With just $32 Billion starting out, the fund could dramatically rise in if Oil Prices continue to rise. The main purpose of the fund is for the guarantee of the voluntary pensions of the citizens. In addition, to help balance the budget of the Pension Fund for the Russian Federation.

The fund will mostly be managed by the Russian Ministry of Finance. The fund also has the ability to lend money to Russian banks. Furthermore the Fund is to serve as an important tool for absorbing excessive liquidity, reducing inflationary pressure and insulating the economy from volatility of oil & gas export earnings. This fund will be allowed to invest in riskier assets, such as corporate bonds and possibly equities.

News and Updates

Russia Spends $12Bln From Oil Wealth Funds in April
Moscow Times reports that, "Russia spent 352.5 billion rubles ($11.97 billion) from its oil wealth funds in April, using the money to plug a post-recession budget deficit and boost the state pension coffers, Finance Ministry data showed on Tuesday. The Reserve Fund fell to 1.19 trillion rubles on May 1 from 1.55 trillion rubles a month earlier, dented by a transfer of some 350 billion rubles into the budget and, to a lesser extent, by the appreciation of the ruble against foreign currencies in which the cash is kept."
read more: Moscow Times

Russia to encourage mortgage, housing construction
ITAR TASS reports that, "The Russian government plans to appropriate up to 40 billion rubles to encourage mortgage credits and housing construction and the issue will be discussed on Friday.

Deputy Finance Minister Alexei Savatyugin will deliver the report and offer to appropriate up to 40 billion rubles to the Mortgage Crediting Agency to buy out mortgage deeds from banks and promote credits to developers and customers.

“The funds from the National Welfare Fund placed on VEB deposits will be provided to the Mortgage Crediting Agency as loans at 9.5 percent rate for a period of up to June 1, 2015,” a government source said.

“To balance credit terms and money flows on VEB mortgage deeds the lawbill proposes to extend the submission time to the Agency to June 1, 2020,” the source said. "
read more: ITAR TASS

VEB Gets Welfare Fund Cash for Infrastructure
The Moscow Times reports that, "Money from the National Welfare Fund will be used to finance Vneshekonombank's infrastructure projects, an arrangement that is profitable for the Finance Ministry and the state corporation but also carries significant risk. In December, the ministry closed ahead of schedule a 175 billion ruble ($5.9 billion) deposit at VEB — which the state corporation received in October 2008 to support the stock market — and opened a foreign currency deposit. It deposited $2 billion from the National Welfare Fund (which totaled $91.56 billion, as of Jan. 1) at a rate of 2.75 percentage points above the London interbank offered rate. The loan must be returned July 1, 2011, and VEB must make interest payments every six months.

The funds were placed to diversify and earn a higher return for the National Welfare Fund, the ministry said in a statement. "It's a profitable investment. The rate is higher than at the Central Bank, especially since LIBOR is going to rise," a high-level Finance Ministry source said.

The six-month dollar LIBOR rate was 0.4 percent Tuesday."
read more: Moscow Times

Kudrin Says Reserve Fund to Be Spent by 2010
The Moscow Times reports that, "Finance Minister Alexei Kudrin said Wednesday that the Reserve Fund would be "practically exhausted" in 2010, and the government will have to cut spending to trim a budget deficit that is estimated at 7.4% this year.

'The period of spending increases is ending,' Kudrin told lawmakers. 'In the coming years, we will have at least to keep spending at the current level for many sectors, but for some we won't even be able to do this, and programs will have to be reduced.'

Russia's two sovereign wealth funds fell in March to a combined 7 trillion rubles ($206.1 billion) as the government began transferring money to cover its first budget deficit in a decade. The government expects revenue to drop by 30% this year as the economy enters its first recession in 10 years and tax revenue tumbles on slowing demand at home and abroad."
read more: Moscow Times

Russia SWFs banned from Fannie/Freddie investment
Reuters reports that, "Russia on Thursday banned investment of its $220 billion sovereign wealth funds in bonds of agencies such as Fannie Mae and Freddie Mac saying it needed more liquid assets to meet the needs of its own budget. Russia had about $100 billion of its foreign currency reserves invested in U.S. government agencies at the start of 2008 as it sought to broaden its portfolio and chased higher yields."
read more: Reuters

State Corporation concept is considered to monitor state funds
The Moscow Times reports, "the government is considering the creation of a new state corporation called the Russian Financial Agency, which would monitor state funds including the National Welfare Fund, Vedomosti reported Tuesday.
The report said the planned corporation, which could manage as much as 7 trillion rubles ($225 billion) if it included the Reserve and Pension funds and the country's debt, was included Monday in the government's work plan for the first half of 2009."
read more: Moscow Times

Russia VEB, Sberbank may get state funds until 2020
Russian state banks VEB and Sberbank will get funds from state National Wealth Fund on deposits until 2020 as part of the state plan to rescue the country's financial sector, Interfax reported on Friday. The agency quoted a draft law as saying Sberbank will get a subordinated 500 billion rouble ($19.11 billion) loan at an annual interest of 8 percent and will issue a bonds to guarantee it. VEB will get the money from the National Wealth Fund at a rate of 7 percent a year and will provide loans to state bank VTB, and other banks and companies at 8 percent a year.
read more: Hemscott

Russian Finance Ministry: No plans to tap oil windfall
According to Reuters, "Russia has no plans to tap its $141 billion Reserve Fund - which serves to cushion the budget from oil price shocks - in 2008, despite the falling oil price, the Finance Ministry said in a statement on Thursday. The ministry said the average price of oil in January-September 2008 stood at $109.1 per barrel and was not expected to change significantly before the year-end. The ministry said the Reserve Fund will only be tapped if the average price of oil per year falls to below $70 per barrel, which was unlikely in 2008. The ministry's officials earlier said the budget can sustain an oil price of $50 per barrel."
read more: Thomson Reuters

Russia will not dump Fannie, Freddie debt: FinMin
According to Reuters, "Russia is not planning to raise its exposure to debt issued by U.S. agencies Fannie Mae and Freddie Mac, but will not cut it rapidly, Russia's deputy finance minister said on Wednesday.

'At the moment we are not planning to increase our holdings. We are also not planning a sharp exit, because this is decent paper and it is bringing us decent earnings,' Deputy Finance Minister Dmitry Pankin told a news conference.

On Tuesday, Freddie Mac had little trouble selling $3 billion of debt, seemingly passing an important test of the U.S. housing finance company's ability to raise funds. It said global central banks had bought around a third of the issue."
read more: Thomson Reuters

Russian President advises National Welfare Fund to seek more investments
The number of ways in which the National Welfare Fund can be invested needs to be increased, Russian President Dmitry Medvedev said during a meeting on economic issues in the Kremlin today. The fund must increase the number of options available for investment in various securities, including shares and bonds of both Russian and foreign companies, the President noted. He reiterated that, according to the Russian Budget Code, the National Welfare Fund was created to help finance pension payments and support the pension system as a whole. Therefore, it is vital that the fund be invested in reliable securities, Medvedev stressed.
read more: RBC News

Russian Deputy Finance Minister: High Inflation Prevents Invest From Oil Fund
According to FX Street, “Russia's high inflation rate means investment of accumulated oil fund assets in the country's economy can't take place, Dmitry Pankin, the country's deputy finance minister, said Wednesday.

The country's infrastructure needs a significant influx of capital, especially the transport services and roads, but the benefits to the economy from a sizable injection of public money into these projects won't compensate enough for the side effect of inflation, Pankin said.”
read more: FX Street

Russia needs to have around $50 Billion in the National Welfare Fund says Pankin
According to Reuters, “Russia needs to lock up to $50 billion in its sovereign wealth fund for 5-7 years to make portfolio investment in foreign shares feasible, deputy finance minister Dmitry Pankin, who supervises the fund, told Reuters. Russia has set aside $162 billion in energy revenues split between two funds -- the Reserve Fund, which serves as a safety cushion for the budget, and the $33 billion National Wealth Fund (NWF), earmarked for riskier investments.”
read more: Guardian

Weak Dollar Slows Down Oil Stabilisation Fund Growth
The oil stabilization fund has lost value due to the US dollar depreciating. Even though the US dollar is depreciating, it is being offset by high oil commodity prices.
read more: Kommersant

Deputy finance minister: Russia should invest oil wealth abroad
Reuters reports that, “Russia should keep investing its oil and gas revenues abroad rather than trying to use them to prop up domestic growth, Deputy Finance Minister Dmitry Pankin said on Monday. The investment of the newly-created $32 billion national wealth fund is a big issue in Russia, with the finance ministry saying the money should stay abroad, but others, including President Vladimir Putin, have said at least a portion of it could be used at home.”
read more: Reuters

5-10% of National Welfare Fund invested in Russian markets
Between 5% and 10% of Russia’s National Welfare Fund may be invested in domestic financial markets, Deputy Prime Minister and Finance Minister Alexei Kudrin told reporters Tuesday. "We'll start from 5%, and subsequently we could increase that figure to 10%," he said.
read more: Prime-Tass

Russia's VTB may become sovereign wealth manager
According to Reuters, "Russia's second-largest bank, state-controlled VTB, may become an asset manager for Russia's $32 billion National Wealth Fund (NWF), Finance Minister Alexei Kudrin was quoted as saying on Wednesday."
read more: Reuters

Expressing interest in Japanese Bonds & Equities
"We are interested in Japanese government bonds and Japanese firms' stocks," Kudrin told Reuters after a meeting with Japanese Finance Minister Fukushiro Nukaga.

Splitting of oil stabilisation fund into reserve fund and National Welfare Fund ($32 Billion)
The Russia's Finance Ministry has until Oct. 1 2008 to design an infrastructure for the sovereign fund's investment; meanwhile the money in the fund will be invested in sovereign or government agency bonds rated not lower than "AA-".
$157 Billion Oil Stabilisation Fund will now = $125 Billion Reserve Fund + $32 Billion Sovereign Wealth Fund


Stabilization Fund of the Russian Federation

1. All figures quoted are from official sources, or, where the institutions concerned do not issue statistics of their holdings, from other publicly available sources.

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