1. Will the Russian Bear fall:
How Protests and Rising middle class affect corruption
and private equity landscape
Alexander Abolmasov
Managing Partner
NRG SuperReturn Emerging Markets 2011
www.nrgc.com 25 - 28 June 2012, Geneva, Switzerland

2. We planned to visit Russia in 2007, but then something
happened. And now we would like to get update on what is
going on in Russia
June 2012
American LP
Partner

3. I took a speed reading course and read 'War and Peace' in twenty
minutes… It involves Russia.
Woody Allen

4. Middle class tripled in 5 years and wants
more than money…
Annual nominal household's # of people, m Changes in # of people,
disposable income 2005 2010 2005-10, %
>$15,000 11,9 45,1 278%
$10,000 - $15,000 17,5 36,1 106%
$5,000 - $10,000 57,3 45,4 -21%
$3,000 - $5,000 33,7 16,4 -51%
<$3,000 21,0 <1 -99,9%
Total 142,8 142,9 0,1%
Source: McKinsey

5. 10.12.2011 50K people
Bolotnaya square
First big protest in 20 years
Reaction to fraud in the Parliament elections (04.12.11) and
announcement of Putin returning back to power

6. 24.12.11 70K people
Sakharova Street
After Bolotnaya success the
movement grew

7. 6.05.12 70K people
Bolotnaya – 2
One day before Putin inauguration, clashes with police

8. 13.05.12 20K people
Garden Ring
“Control walking”
To show that people could do protests without agreeing location
with government

9. 12.06.12 50K people
Law passed limiting demonstrations with fines
up to $10-20K

10. Political pressure is rising, but revolution is not
on the agenda…
Demography specifics of Russia
Concentration in Moscow and few big cities
No protesting youth
Protesters are middle class and want
Retain status quo
Respect and security
And better government services

11. Russian population density map

12. Russian demography: protests as a conflict
of generations Age
Men Women
1933-34 YOB
Famine
1932-1933
1941-45 YOB
World War II
1937-39 YOB
1983 YOB
1981-1982 “Soviet” Generation: ruling class
extra state
support for 1967-69 YOB
families with “Echoes of
children WWII”
“New Russia” Generation: middle class
2007 YOB
1990-95 YOB
“Echoes of war”
Collapse of SU
Children of
1978-1987 YOB
Generation
Thousand people

13. One of protests’ results: corruption is going
down
Q: Whether you think it applies, or does not apply, to your country/industry, or whether you don’t know?
84 93
52 48
Corrupt 14
practices
happen widely
% of applies to
56 58
Corrupt practices
have increased 20 26 18
because of
economic downturn
% of applies to

14. …if we’re not going to “blackball” China (more authoritarian and
repressive than Russia), Brazil (arguably more corrupt than Russia)
or India (corrupt, and also rather unhelpful on Iran), then there
doesn’t seem to be any real reason to “blackball” Russia.
Mark Adomanis
Journalist

15. My fellow Americans, I am pleased to tell you I just signed
legislation which outlaws Russia forever…
The bombing begins in five minutes.
Ronald Reagan
Said during a radio microphone
test, 1984

16. Russian PE industry snapshot
EBRD Funds Captive and semi-captive
Capman Merged
Russia East CP Alfa CP Icon CP
Partners BVCP Norum
Quadriga
NRG UFG Troika VTB RPEF
Merged
UCP Elbrus Wermuth Svarog Uralsib
Delta Rencap
Spin-off
Independent New players
Spin-off
Mint Aurora Marshall Quadro Aton
Da Vinci Prometheus

17. Russian PE consistently outperforms
20,1%
EBRD Russia/CIS PE
32,3%
Portfolio
16,7%
15,0%
Cambridge EM
20,6%
VC&PE Index*
8,3%
16,9%
EBRD PE Portfolio** 25,0%
6,4%
Ten years Five years One year
Source: Cambridge Associates, EVCA/Thomson Reuters, Bloomberg and EBRD
•EBRD tracked portfolio pooled end-to-end return, net of fees, expenses, donor grants and carried interest. Excludes property funds, and includes liquidated
partnerships.
•** Pooled end-to-end return, net of fees, expenses, and carried interest. “The "Since Inception" figure represents the net pooled IRR since inception for funds
formed between 1980 and 2009.

18. Russian economy is still very attractive
Great prospects for next 20 years
Debt/GDP about 10% (#181 in world) #2 MCap growth
10.2% forward 20-yr CAGR (#1 is China with 11.5%)
#5 Strategic investors target #2 Allocation growth
According to UNCTAD survey after China, Brazil, India and US From 1% to 3% in MSCI in 20 years
#6 GDP
Bigger than Germany and France in 20 years
46% of wannabe entrepreneurs #11 GDP growth
Among people 20-29 years compared with only 29% for But at least 30% GDP/capita higher than in countries with higher G
30-47 years. growth
According to latest Goldman Sachs BRIC and N-11 economic resear
http://goo.gl/sx6Vb

19. You should be not afraid of Russians, because
they already started a lot of companies in US
4 out of 10 USA largest companies listed on Fortune 500
rating were founded by immigrants or their children.

20. Did you know that these companies were
started in Russia?
And there even more…

21. NRG Portfolio Case Study: Genser
Biggest Infinity Dealer in the World and Nissan Dealer in Europe
12% of Nissan market in Russia
12 brands/24 dealerships in Moscow and in Central Russia
Current multiple 5X and 45% IRR on initial investment
2177.4
1600.1
1366.6
999.0
803.0 723.2
26.7 65.2 44.6 56.1 62.7 73.6
2007 2008 2009 2010 2011 2012E
Revenue, $m EBITDA, $m
21

22. NRG Portfolio Case Study: Begemot
#2 toy retailer in Russia
Mid/low prices
Growth in 2 years: 50 -> 200 retail outlets.
90% EBITDA growth
70% sales growth
Structured equity transaction summary
• Secured loan with equity kickers
• Board seat and veto rights
• Current return: 18%
• Exited IRR: 41%
22

23. Summary
Rising middle class drives the transformation of Russia
Russian PE consistently outperformed
Russia is #2 out of BRIC (poll on SuperReturn EM 2011)
Existing funds will be able to cherry pick projects
It takes time for LPs to change their attitude, but contrarians will be
able to harvest good returns
Come and visit “New Russia”
to see the Growth yourself!
Alexander Abolmasov
aa@nrgc.com
www.nrgc.com