Blackstone to pull out of Russia

US private equity group Blackstone is “giving up on Russia”, highlighting how even well-connected western investors are shying away from doing business in the country.

The New York-based buyout group has been frustrated in its attempts to find deals in the country since its co-founder Stephen Schwarzman joined the international advisory board of the Russian Direct Investment Fund, a $10bn government-backed fund, three years ago.

It hired Dmitri Kushaev, the former head of investment banking at ING in Russia and a former private equity executive, as senior adviser to assist on deals in the country.

But Blackstone, which does not have an office in Russia, has chosen not to renew the contracts of the consultants it employs in the country.

According to a person with knowledge of the matter, the move will bring to an end Blackstone’s embryonic attempts to break into Russia.

Blackstone declined to comment.

US and European sanctions against Russian individuals close to the Kremlin, as well as state-backed industrial and banking groups, have led to a freeze in Western investments in the country.

Blackstone’s decision was also prompted by the fact that it had not found suitable investment opportunities in the past three years, the person said. “In the good times, Blackstone couldn’t find anything to do and in the bad times, Blackstone can’t imagine doing anything.”

Earlier this month, DMC Partners, a private equity group founded by three former Goldman Sachs executives including the bank’s former Moscow chief, was shut down after failing to raise a planned $2bn fund.

The European Bank for Reconstruction and Development, which has backed some of Russia’s most successful private equity groups in the past three decades, including Moscow-based Baring Vostok, has also suspended new investments in the country.

International buyout groups were wary of Russia even before the Ukrainian crisis, fearing corruption, political interference and a complex judicial system.

Washington-based Carlyle has retreated from the market twice – the last time in 2005 – saying the returns were not worth the risks.

This perception was reinforced last week after Vladimir Yevtushenkov, the chairman of AFK Sistema, one of Russia’s largest private corporations, was arrested on charges of money laundering in a case linked to his company’s acquisition of Bashneft, a Russian oil producer.

TPG Capital, co-founded by US financier David Bonderman, is the only global buyout group of significant size to have built a presence in a market dominated by local players, the occasional oligarchs and state-owned bank VTB.

In 2012, Baring Vostok, whose investments included a stake in Yandex, the Russian search engine, raised $1.5bn, the country’s largest private equity fund.