Movement of assets from refrigerator to freezer

The standard difference between the meaning of the decision of the regulator and the private owner is that, with all the decisiveness of state structures both in Russia and abroad, it is difficult to rely on these decisions as sure signals: they almost never have any kind of payment or rate behind them, to say the least. about state assets. On the contrary, an indecisive, taciturn and usually evasive private owner, when making decisions, creates a much more reliable signal – it costs the owner money, so it is difficult to treat these messages as playful or temporary.

A Reuters review of the strategy of large hedge funds and private equity funds in relation to Russian assets is a good illustration of this principle. The essence of the problem: after the start of the military operation of the Russian Federation in Ukraine, most of the Russian assets on the balance sheet of funds ceased to be worth anything certain due to bilateral sanctions. Accordingly, their presence on the balance sheets of funds managed by Erste, PIMCO, BlackRock, Schroders, Danske, Nordea worsens the performance of the funds – these assets are worth almost nothing on the balance sheet and bring zero income. A practice that has been spreading in the world since the 1990s is to place such assets in the so-called side pockets, “side pockets”, these are separately accounted for “bad asset funds” (similar to “bad asset banks”), evaluated and managed according to several other (often more stringent but less expensive) protocols. The co-owners of the “pockets” are the old holders of shares in the funds, the new participants have nothing to do with them, and they do not buy the risks of frozen Russian assets, dealing only with ordinary ones.

In the US, the creation of “pockets” until recently was blocked by the sanctions enforcement unit of the US Treasury – OFAC, only in July clarifications of this structure opened up the possibility for funds to clean the portfolio of Russian assets in this way. In the EU, for example in Luxembourg, as well as in the UK, there were no such restrictions. However, British funds almost did not create “pockets” for assets associated with the Russian Federation in the summer, the Luxembourg regulator CSSF confirmed to Reuters that such actions were infrequent until August. Nevertheless, for September, a significant part of the managers offer the co-owners of the funds just such a solution. Its meaning in the message of the agency was stated by one of the consultants of the funds as follows: “These assets can lie under a bushel for twenty years.”

What is important for us in this situation is not the position of OFAC and other regulators, but the decisions of the funds – they cost them resources (attracting lawyers, consultants, side pockets is not a free solution at all). The forecasts of the funds about what will happen to Russian assets have been paid: until August 2022, they fluctuated in forecasts, since September, apparently, they have gained certainty. Against this background, the rhetorical certainty of EU and US state structures regarding assets from Russia is worth less.