Russia plans agency to run sovereign wealth fund

MOSCOW, June 18 (Reuters) - Russia plans to set up a government agency which will manage its sovereign wealth fund and make investment decisions, a government source told Reuters on Wednesday.

The proposal was discussed by President Dmitry Medvedev amd officials at a meeting in the Kremlin on Tuesday, when Medvedev gave his blessing to a riskier investment strategy for Russia's first sovereign wealth fund.

"The proposal to create an agency has been supported at the meeting," the source said. The Russian agency will resemble Abu Dhabi Investment Authority, which agreed last November to buy $7.5 billion of stock in Citigroup.

Russia split its oil stabilisation fund this year into a $129 billion Reserve Fund, which will cushion the budget from a fall in oil prices, and a $33 billion National Wealth Fund (NWF) earmarked for riskier investments.

The source said officials did not discuss exact asset allocation at the meeting.

Both funds invest now in top-rated bonds, on which returns are low. Medvedev backed a proposal to expand the list of instruments in which the NWF invests to include securities of both Russian and foreign issuers.

The Finance Ministry, which runs both funds, and the central bank, which acts as the government's asset manager, have to draft proposals on the fund's investment strategy by Oct. 1.

Since the central bank is not authorised by law to invest in stocks, the NWF will be transferred to the new agency, which will then contract several external asset managers.

The source said both Russian and foreign managers will be able to take part in tenders. Vladimir Dmitriyev, head of Russia's Development Bank, the government's debt agent and pension fund manager, attended the meeting in the Kremlin.

Analyst group Global Insight put the combined value of global sovereign wealth funds at $3.5 trillion in 2007, more than enough to match the established economies of Britain, Germany or France. The International Monetary Fund is drawing up principles for best practice in governance and transparency for the roughly 40 such wealth funds from 34 countries, amid worries in the developed world about politically-motivated acquisitions.

Gulf Arab states and companies, buoyed by record oil prices being paid to the world's largest oil-exporting region, spent about $60 billion on foreign assets last year, almost double the previous two years combined.

But compared with China and the Gulf, Russian firms and its sovereign wealth fund have so far been slow to make aggressive moves overseas and the Kremlin has urged Russian companies to snap up assets globally while they are cheap.

Russia's most controversial acquisition to date was the purchase of a 5 percent stake in European space and aviation giant EADS (EAD.PA) by state-controlled bank VTB (VTBR.MM), which caused political shivers in France and Germany.

Last week a newspaper report that a that Russian billionaire Suleiman Kerimov is interested in buying stakes in major European banks and wants other tycoons to join him briefly lifted shares in several major European banks. (Reporting by Gleb Bryanski; editing by David Stamp)