By Barbara Lewis and Dasha Afanasieva
LONDON (Reuters) - Macquarie (AX:MQG) is trying to pull out of the Russian-focused infrastructure fund it manages after some of the investments underperformed, three industry sources and a banker said.
The fund, the first major private fund dedicated to infrastructure in Russia and the CIS when it was set up in 2008, owns debt in Brunswick Rail and equity stakes in energy suppliers Enel Russia (MM:ENRU), GSR Energy, and telecom company Russian Towers.
A spokeswoman for Macquarie declined to comment. No data is available on the fund's performance.
"Last fall Macquarie decided to get rid of the fund either through asset sales or selling their general partner role and MIRA’s (Macquarie Infrastructure and Real Assets) asset stakes in the fund completely and withdraw from it," Vladimir Lelekov, chairman of Brunswick Rail, said in an interview.
The fund had a target size of $1 billion (722.18 million pounds) to $1.5 billion, one of its investors the European Bank for Reconstruction and Development (EBRD), said on its website, but only raised $630 million. Macquarie has been the sole manager since its partner Renaissance Capital pulled out in 2013.
Apart from the EBRD, the other investors include development banks the International Finance Corporation (IFC), the Eurasian Development Bank (EDB), Russia's development bank Vnesheconombank.
Development banks typically have a mandate to kick off investment in difficult sectors and jurisdictions in the hope private money will follow. But Macquarie and Renaissance were the only private investors.
While the world's biggest country by landmass has a pressing need for investment in infrastructure, industry sources said it was hard to make good returns. This was because of an unpredictable political and legal environment and the collapse in the rouble's value since 2014.
Lelekov also said that managing the fund had become harder for Macquarie since it closed its Moscow office in 2017. The Macquarie spokeswoman confirmed it had no office in the Russian capital.
"They have been running the fund out of London for some time now and it's not the best way to handle investments in Russia if you want to achieve results," Lelekov said.
An EDB spokeswoman confirmed that Macquarie was seeking to sell its portion of the fund. She said by email the EDB had been consulted but could not name any potential buyers.
A banking source, who declined to be named, said he knew of parties interested in the fund. The source declined to name them. A third industry source said the fund had underperformed and was for sale.
The EBRD and the IFC committed $100 million each to MRIF. Spokesmen for both declined to comment on Macquarie's plans. In an email, an official at Vnesheconombank, which had committed $200 million, declined to comment on any sale or whether it had been consulted.
BUDGET SQUEEZE
Infrastructure in Russia has suffered from years of under-funding. The slump in oil prices and Western sanctions imposed over Russia's involvement in Ukraine hit the rouble and this squeezed government spending.
But the oil-dependent economy was on the mend in 2017 after two years of recession and with the prospect of more cash, infrastructure moved up the list of government priorities ahead of a presidential election this month.
The sources did not provide a detailed performance of the fund.
Enel Russia (MM:ENRU) has rallied from 2014 lows but is still far below its peak when oil prices were surging in 2008
It is also lower than its price in 2012, when MRIF bought a blocking stake along with Russian sovereign wealth fund RDIF, investment firms AGC Equity Partners and Xenon Capital Partners and others.
An official at Russia's majority owner Enel (MI:ENEI) declined to answer any questions about MRIF.
Financial details for Russian Towers and GSR were not available.
According to statements on its website, Brunswick Rail returned to profit in 2016 after sharp losses in 2014-2015, driven in part by currency swings. In the quarter ending March 2017, the company posted a revenue of $33.1 million and an operating profit of $13.3 million.