Russian National Wealth Fund

History

The two funds were the Reserve Fund (SFRF), which was invested abroad in low-yield securities and used when oil and gas incomes fall, and the National Wealth Fund, which invests in riskier, higher return vehicles, as well as federal budget expenditures. The SFRF was given $125 billion and the NWF was given $32 billion. The SFRF was exhausted by 2017. It had been depleted by budget deficits and the low oil prices, and therefore ceased to exist, leaving the NWF as the sole reserve fund of the Russian Federation.

In October 2008 the NWF was permitted to invest in shares on the Moscow Exchange or Saint Petersburg Stock Exchange, to support the country’s financial markets by buying shares in Russian companies, until December 2009. Support was also provided from the NWF to Russian banks, making the NWF a “lender of last resort” to banks.

One of the fund's main responsibilities is to support the Russian pension system, but since the closure of the SFRF the NWF also funds budget deficits.

Once the NWF's liquid assets exceeds 7% of GDP, the Government can spend money from the NWF, as it proposed to do in 2020 in order to fund infrastructure projects.

The budget for 2022 set an oil price of $44.2 per barrel, with the NWF receiving money if the price was over the set price and selling assets to support the government budget if the price was lower. In 2023 this was changed to set an annual target of $8 trillion rubles revenues from oil and gas, anything below that seeing funds being taken from the NWF to support the budget, anything above being added to the NWF. As it turned out, the revenue in 2023 was 8.8 trillion rubles.

Following the Russian invasion of Ukraine in 2022 1 trillion rubles ($10 billion) was ordered to be invested by the NWF in shares from Russian companies to support the stock markets and aid Russian firms. In January 2023 changes were proposed to allow "anti-crisis" investments to be made, with a cap of 4.25 trillion rubles ($61.24 billion) on these investments, irrespective of liquidity levels in the Fund which at that date stood at $87.2 billion, or 4.6% of GDP.

Funds in the NWF are composed of a liquid assets account and a long term investments account. whilst buying Yuan to reach 30% and Euros to reach 40%, Sterling and Yen each at 5% and Gold 20% of the liquid fund value. After the start of the Russian invasion of Ukraine, management decided to close the Euro holdings. It aimed to achieve this before the end of 2023 in favour of Chinese yuan, which would be limited to 60% of the fund value, with gold limited to 40% of the liquid fund value.

On 27 December 2022 expenses of the NWF were limited in 2023-2025 to 8 trillion rubles ($114 billion) while the investment strategy changed to invest only in Chinese yuan.

In December 2022 long term investments stood at 4.3 trillion rubles, with liquid assets at 6.1 trillion rubles.

For 2024, Russia changed the funding rules again, so that the NWF will not receive the expected 2024 11.5 trillion rubles of oil revenue, which will go directly to the Russian budget instead, with just 1.8 trillion rubles projected to be being given to the NWF in 2025. The rules also changed to recover the 2023 surplus that had been paid to the NWF, so that from late 2023 the central bank restarted dealing in currencies in the NWF, to sell the budget adjustment of 2023, where 11.8 billion rubles will be sold daily until 28 June 2024. Currencies would also be sold/bought for the expected 2024 budget adjustment based on a set $60 per barrel from oil sales, expected to account for an average of 0.8 billion rubles in sales per day. This will reduce both the fund value and the liquid assets by around 2.3 trillion rubles by the end of 2024. The 2024-6 budget expects the NWF to hold a reduced 11.1 trillion rubles at January 2025 and 13.0 trillion at January 2026.

In November 2024, the NWF was made up of a total of 13 trillion rubles ($133.7 billion), of which 5 trillion were liquid assets, mostly in yuan and gold.

The NWF decreased its holdings of gold over the course of 2024 from 358.9 tons of the metal on 1 January 2024 to 187.7 tons on 31 December 2024, a reduction of 48% over the year.

Major changes in NWF value

• In the second half of 2019, the effect of an OPEC+ agreement to increase oil prices resulted in Russia receiving a high level of revenues, allowing 4.04 trillion rubles ($65.1 billion) to be added to the NWF.
• In 2020, despite COVID-19 effects on the economy the NWF values increased by 50%, helped by high oil prices, and a surplus in the Russian budget in 2019.
• In 2022, with very high oil prices, additional funds would normally have been added to the Fund, however with the cost of the war with Ukraine, in October $16.2 billion was withdrawn from the $127.9 billion liquid portion of the NWF.
• In 2023, the budget deficit in December 2022 of 3.8 trillion rubles (€49.4 billion) and the effect of the 2022 Russian crude oil price cap sanctions required $38.1 billion to be withdrawn, with further withdrawals expected in 2023 as a result of the continuing sanctions over crude oil.

Major reductions in NWF liquid assets

Overview

The National Wealth Fund will receive funds from investment returns and any excess funds from oil and gas revenues.

According to the Russian Ministry of Finance, the foreign debt securities the fund can invest in must have credit ratings of AA− or higher by Fitch or Standard & Poor's, or a rating of Aa3 by Moody's.

The NWF stands out from other global funds with it gathering investments into the national economy itself instead investing everything overseas, so it can provide a boost to the slow modernization of Russian infrastructure in a time of otherwise anemic investment. Other countries like Indonesia are following the Russian example in running a National Wealth Fund it is reported in 2020. Of course, because of a lack of a real "hard currency" reserve, the fund can quickly lose value in a case of internal crisis.

In 2013, the NWF invested 150 billion rubles into the Trans-Siberian Railway and the Baikal-Amur railway.

The NWF approved the investment of $4.2 billion into the state's nuclear energy corporation Rosatom in June 2014. Another $4.2 billion was invested into the Russian Direct Investment Fund, which used a portion for two regional internet connection projects in December 2014. In December 2014, the NWF invested in VTB, Gazprombank and Rosselkhozbank equity. An additional 30-year deposit was made by the NWF to help the VTB bringing the total investment to $5.5 billion.

In 2016, NWF had invested $2.6 billion in the Yamal LNG plant.

In 2020, NWF bought 50% +1 share in Sberbank from Russia's Central Bank.

Starting from 2024, the NWF will invest $3.2 billion in an $11.2b project to build 600 civilian aircraft which will be sold to airlines at a below cost price.

There was an increase in oil and gas revenues in the first four months of 2024, but the Russian Ministry of Finance still reported that the NWF funds were used to cover profit shortages.

Fund composition

All numbers are in billion, unless specified otherwise; the numbers with "worth" in parentheses are the equivalent in US Dollars:

Size of the fund and historic numbers

Source by the Ministry of Finance of Russia:

Sanctions

Main article: International sanctions during the Russo-Ukrainian War

Following the 2022 Russian invasion of Ukraine, several countries imposed economic sanctions on Russian banks, individuals and companies. On 22 February 2022, United States President Joe Biden announced new restrictions on activities involving the National Wealth Fund. The EU adopted sanctions in its 10th package in February 2023.

Assets in June 2023 include €9 billion that is frozen in foreign banks by sanctions.

References

References

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44. "Russia {{!}} National Wealth Fund: Total Amount {{!}} CEIC".
45. "Russia {{!}} National Wealth Fund: Total Amount {{!}} CEIC".
46. "Russia {{!}} National Wealth Fund: Total Amount {{!}} CEIC".
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