Russia plans agency to run sovereign wealth fund

By Gleb Bryanski

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.