Russia's sovereign fund to respond to US sanctions with full force

RDIF said it never indulged in political activities and followed best investment practices

Kirill Dmitriev, chief executive of the Russian Direct Investment Fund. The fund manages about $10 billion in assets. Reuters

The Russian Direct Investment Fund (RDIF), which manages more than $10 billion assets, will respond to US sanctions by using all “available means to protect its rights, reputation and lawful interests”, including by taking the matter to the court, the sovereign wealth fund said in a statement.

“The RDIF was never involved in any political activities … [it] always fully complies with laws of the countries where it conducts its investments,” it said on Monday.

The fund, which has about $40bn of commitments from its partners in addition to assets under management, wasn’t involved in any communication with Ukraine and “follows the world’s best investment practices, which have been acknowledged by all its international partners as well by national regulators”, the fund added.

The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) imposed sanctions on the fund, its management company and one of the managing company’s subsidiaries in response to Russia’s military offensive in Ukraine.

“By blocking these entities, OFAC is terminating yet another route through which Russia has benefited from access to the US financial system,” the US Treasury said.

Moscow-based RDIF was created in 2011 by former Russian president Dmitry Medvedev and then-prime minister Vladimir Putin. It operates in a number of industries and makes equity co-investments, primarily in Russia, alongside international financial and strategic investors, that include other sovereign wealth funds.

One of the purposes behind RDIF’s creation was to develop relationships with international investors for direct investment in Russia. RDIF has partnered with companies such as China's e-commerce giant Alibaba, which has a venture in Russia, where e-commerce sales are projected to grow at an annual growth rate of 6.9 per cent between 2020 and 2024, according to Statista data.

It has also funded the development of Russia’s Sputnik V Covid-19 vaccine, which is produced by Moscow’s Gamaleya Centre.

Sanctions against RDIF demonstrate "that the US has picked the course to destroy constructive dialogue between countries”, the fund said.

“The restrictions imposed by the US authorities complicating RDIF efforts on the international promotion of the Russian vaccine products have been lobbied by a number of large western pharmaceutical companies.

“As a result of such unfair competition, billions of people around the world may be deprived of access to effective and safe Russian-made vaccines.”

Russia’s central bank also increased interest rates to their highest level in nearly two decades as the rouble plunged to a record low against the dollar in early trading on Monday.

Inflation will immediately surge and the Russian banking system is probably in trouble, senior market analyst at Oanda Jeffrey Halley said.