Russia presents opportunities for private equity investors, though concerns remain. Russian private equity has consistently outperformed other markets, with the economy recovering strongly from the financial crisis. While corruption and demographics pose challenges, surveys show Russia is seen as the #2 most attractive BRIC country for investment. Major deals continue to occur, and the private equity industry in Russia includes around 20 established firms with significant assets under management prior to the crisis. Understanding the opportunities requires overcoming stereotypes, but meeting with leading Russian private equity players can provide the information needed to evaluate investment prospects.

1. Alexander Abolmasov
Managing Partner
NRG
www.nrgc.com
Understanding
Russia:
Abyss or good ride? SuperReturn Emerging Markets 2011
26 - 28 June 2011, Geneva, Switzerland
Good morning! Let’s discuss private equity investments into Russia. For many foreigners investing in Russia is like extreme
skiing. It could be exciting, but many are afraid to get injured.

2. What is Russia: ?
So what pictures come to you mind, when you think about Russia?

3. Have you imagined one of these?
To many people it is something of these.

4. British Point of View
Your stereotype image of Russia may depend on your cultural background. In UK most people thing about Russians as very
rich people, who buy real estate in London. The same thing in Switzerland. On arrivals in Geneva airport I’ve see only one
reference to Russia: an HSBC advert stating that Russian billionaires are 18 years younger than American ones on average.

5. German Point of View
In Germany they pay more attention to Russian natural resources, especially gas. Another problem is that on the map of
Europe you always see only a small part of Russia. The rest just doesn’t fit on the screen or page. So it is hard to understand

6. US Point of View
For Americans it is even harder, because Russia historically is the Arch Rival. Also Russia is broken into two parts on an
American map of the World. America is in the center and Russia is surrounding World from the left and from the right. This
is quite an uncomfortable notion for the most peoples minds.

7. Russia is so HUGE ?
But actually Russia is not so huge. To understand that you should look at Russia … from space at night. Most activities are
located in Central Russia and near this zigzag of light, which is Transiberian railroad.

8. Not so huge for private equity deals
Central
and
Northern
Russia
Urals
Siberia
This corresponds with population density map. 90% of private equity deals are done in highlighted regions, which have the
size similar to Europe. Once people understand this, it is much easier to fit Russia into their minds.

9. Russian Economy

10. Now to Russian economy. For the last two years it was in hate mode of love&hate cycle. However, yesterday’s poll results in
this conference, where Russia took second place for investment climate among BRIC countries, shows that we are moving
back to love mode of this cycle.

11. If I bring Russian deal to Investment committee they could fire me.
If I don’t bring Chinese deal to Investment committee they could
fire me.
Partner
Leading LP company
However, sometimes personal courage is required a to present Russian funds on investment committee, because people
are afraid to be fired for this.

12. Let’s Test the Perception Gap about Russia
Do you Have you heard that
Have you heard of
know what “Let’s transform
Goldman Sachs updated
their report in 2010 and
is BRIC? BRIC into BIC”? Russia is now #2 based
on attractiveness?

13. Do you
Have you heard of Have you heard that
know what “Let’s transform Goldman Sachs updated
their report in 2010 and
is BRIC? BRIC into BIC”? Russia is now #2 based
on attractiveness?
Statistic from BVCA Summit, London (March 2011)
95% 45% 0%

14. Concerns about Russia are overblown and offer investors a
chance to buy into booming growth stories.
Contrary to the email I get every two hours about why I
should drop the R from BRIC, I quite like Russia.
June 2011
Jim O'Neill
Chairman of Goldman Sachs Asset Management

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

16. Economic recovery in 2010-2011
Financial side Consumer side
- Stock markets - Consumption
- Exchange rate - Consumer credit
- IPO window
2500 14 700 New car sales (left axis) Loans for individuals growth (right axis) 500
# of Russian companies IPOs/SPOs RTS Index
12 600 400
2000
300
10 500
Thousands units
200
1500
8 400
RUR bn
100
6 300
1000
0
4 200
-100
500
2 100 -200
0 0 0 -300
Source: RTS, PREQVECA Source: Autostat, Bank of Russia

17. Biggest deals
raised $1.3bn in NASDAQ IPO
Biggest Net IPO Since
PepsiCo acquired 66% stake in
Wimm-Bill-Dann for $6bn
Mail.ru raised about $500m through
IPO in LSE
Nomos Bank raised $718m in first
Russian private bank LSE IPO

18. Outstanding issues
Corruption
- Some progress, but not enough
- Main political topic with approval rating of
Russian government below 40%
- Crowdsourcing in fighting corruption
(Navalny and Rospil)
Demographics
- Population stabilized (growth rate 0% in 2010)
- Main growth comes from CIS countries and minority
ethnic groups
- Russia is expected to have Muslim majority by 2050

19. Poll results SuperReturn Emerging Markets 2011
26 - 28 June 2011, Geneva, Switzerland
If you had to invest US$1m in one of the countries listed below, based on the
arguments, which one would it be?
11.2%
24% 34.4%
30.4%
Brazil Russia India China

20. Private Equity
Landscape

21. 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.

22. Russian PE industry snapshot
EBRD Funds Captive and semi-captive
Russia Quadriga East
Partners BVCP Alfa CP Icon CP
Capital Capital
Rusnano VTB
NRG UFG Capman
Wermuth Svarog Uralsib
Capital
Independent New players
Mint Aurora UCP
Aton
Capital Russia
Elbrus
Da Vinci Prometheus
50-100 private funds/ Capital
family offices

23. Trends
Mergers
Norum/Capman, Delta/UFG
Spin-offs
Elbrus, Quadro
Deathpool
Eagle CP, Trifecta
New funds seeded
with HNW money
Aton, Prometheus, UCP
Mezzanine
NRG

24. Case Study: Genser
Biggest Infinity and Nissan Dealer in Europe
12% of Nissan market in Russia
12 brands/24 dealerships in Moscow and in Central Russia
Initial Hybrid equity: April 2009
investments: 2007
Secured loan with equity kickers
Exit to IPO
Multiple: 1.5x 2011
Multiple: 5x Current return 20%
IRR: 45% IRR: 30%
24

25. 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
Mezzanine transaction summary
• Secured loan with equity kickers
• Use of funds: refinancing/working capital
• Board seat and veto rights
• Current return: 18%
• IRR: 41%
25

26. NRG Portfolio
Genser: sales & EBITDA, $m (car dealer) Ufanet: sales & EBITDA, $m (internet provider)
1 800 70
Sales Sales
1 600 EBITDA 1 465 EBITDA 58
60
1 384
1 400 50
50
1 200 43 42
1 000
1 000 40
800 724 30
600
20 15 16
400 10 11
10
200 66 56 54
44
0 0
2008 2009 2010 2011E 2008 2009 2010 2011E
Source: company data Source: company data
Begemot: sales & EBITDA, $m (toy retail chain) Umnitsa: sales & EBITDA, $m (baby food)
200 80
Sales 178 Sales
180 68
EBITDA 70 EBITDA
160
60 54
140 125
123
120 50
106
100 40
80
30
60 19 19
20 14
40 28 11
15 18 10
20 12 3
0
0 0
2008 2009 2010 2011E 2009 2010E 2011E 2012E
Source: company data Source: company data
26

27. NRG. Profile.
Independent alternative investment manager
Volga River One C.P.
First Closing: 29 Sept 2006
Current size (cash): US$178 m
Number of LPs: 20 (15 private + 5 institutional)
Portfolio companies: 6 (telecoms, retail, food production)
Tenor (years): 5+2 with 51% approval of LPs
Volga River Growth
First Closing: $135m, 4Q 2010
Target size: US$250 m
LPs: EBRD, local Institutional LPs
Tenor (years): 5+2 with 75% approval of LPs

28. Summary • Russian private equity consistently
outperformed other private equity
markets
• Russia is #2 out of BRIC by
investment attractiveness according to
Alexander Abolmasov poll on this conference and also
Email: aabolmasov@nrgc.com according to Goldman Sachs
WWW: www.nrgc.com
• Russian economy has fully recovered
after the crisis
• ~20 GPs with AUM of more than
$150m before the crisis
• Only a couple of GPs left with
significant amounts of dry powder
Understanding Russia could take years, but understanding Russian private equity is easy. Just come to Russia for two days
have meeting with 10-12 major players and you will get enough information to make a decision.