Russia to Invest Sovereign Funds in Foreign Bonds

Russia to Invest Sovereign Funds in Foreign Bonds

Feb. 21 (Bloomberg) -- Russia will buy Fannie Mae and Freddie Mac bonds through its sovereign wealth funds, the Finance Ministry said today.

The ministry allowed the investment of money from the Reserve Fund and National Wellbeing Fund into 15 government bonds from the U.S., U.K., Germany, France, Austria, Canada and the Netherlands, including those of Fannie Mae and Freddie Mac, two of the largest sellers of agency debt, a spokeswoman for the ministry said on customary condition of anonymity.

The list included bonds issued by France's Dexia Group and the U.K.'s Network Rail MTN Finance.

Government-controlled funds have benefited from record energy prices. Sovereign funds have invested at least $59 billion in the past year to shore up the balance sheets of such Wall Street banks as Citigroup Inc., the biggest U.S. bank, and Merrill Lynch & Co., prompting U.S. legislators to call for more openness.

``There is no basis for suspicions'' that politics would decide how Russia's funds are deployed, deputy chief of the ministry's international finance department, Pyotr Kazakevich said on Jan. 31.

Fund Split

The nation's $157 billion Stabilization Fund, which invested some of the revenue from crude oil sales in highly-rated sovereign bonds, was split into The Reserve Fund and the National Wellbeing Fund on Jan. 30.

The Stabilization fund had earned an annual return of 10.75 percent since July 2006, according to the Finance Ministry.

The Reserve Fund, containing $125 billion, is invested 80 percent in foreign sovereign bonds and 15 percent in securities of international financial agencies and central banks. The rest is invested in highly rated securities of international financial organizations, according to Kazakevich.

The $32 billion National Wellbeing Fund, invested in the same way as the Reserve Fund for now, will widen its investments to corporate stocks and bonds ``sometime'' after Oct. 1, Kazakevich said on Jan 31.

The government can tap into the National Wellbeing Fund to finance pension savings and any shortfall in the current state pension payments. The Reserve Fund will act as a safety net for the budget.

Also on the Ministry's list are Landwirtschaftliche Rentenbank, Germany's agriculture finance agency, Spain's Instituto de Credito Oficial, Asfinag, the state-owned Austrian company that builds and runs the nation's motorways, Germany's state-owned development bank KfW Group, Canada's Export Development Canada, the Netherland's BNG bank, the U.S.'s Federal Home Loan Banks and Federal Farm Credit Banks, France's Caisse d'Amortissement de la Dette Sociale, Credit Foncier de France, and Austrian export-import bank Oesterreichische Kontrollbank Aktiengesellschaft.

BLOOMBERG