TPG to muscle its way into Russia where others failed

A dozen men in black guard the St Petersburg offices of hypermarket operator Lenta LLC. They’re a reminder of how much muscle it is taking TPG Capital, which owns a stake in the company, to establish a beachhead in Russia.

The firm’s $100 million investment in Lenta in 2009, in partnership with state-controlled VTB Group, sparked a brawl in September. Jan Dunning, backed by TPG and surrounded by bodyguards, barged past Sergei Yuschenko, who had been installed as chief executive officer by rival investors, to reclaim his job running the company. Windows were smashed and punches thrown — all of it broadcast on national television.

Russia’s government, seeking to diversify its economy away from energy, is finding it difficult to lure international private-equity firms, even as investors look to emerging markets. TPG co-founder David Bonderman is betting that with the right connections he’ll overcome a complex legal system, widespread corruption and competition from local oligarchs for assets. Doubters like the Carlyle Group aren’t buying.

“Russia is still perceived as the ‘wild, wild West,’ and the issues TPG is facing there aren’t helping,” said Jeremie Le Febvre, a partner at Triago SA, which helps firms raise funds. “Investors much prefer Asia and Latin America right now.”

RUSSIAN FUNDRAISING
After raising $1.4 billion over the last three years, Russian private-equity managers are seeking more than $4 billion this year and next as deal making is picking up. China, by contrast, attracted $28.6 billion from limited partners since 2008, India $15 billion and Brazil $5 billion as Western pension funds are turning to fast-growing economies to meet increasing obligations, according to the Washington-based Emerging Markets Private Equity Association.