In October, Pioneer Capital Invest LLP (PCI) acquired 100% of Asia-Pacific Bank (APB) shares from the Bank of Russia for 14 billion rubles, the largest deal in the banking market in recent years. A foreign company has become the buyer of a Russian credit institution for the first time in the past few years, a landmark deal for the banking market. Who stands behind the buyer is in Lenta.ru’s story.
We positively assess the results of the transaction and believe that the deal was successful,” Mikhail Alekseyev, Deputy Governor of the Central Bank, said recently in his interview to Izvestia newspaper. The purchase and sale agreement with PCI was signed on October 5, and market participants immediately raised questions about who is behind the buyer of a credit institution of the Russian Federation and what goals they pursue.
“We are optimistic about the results of the deal and believe that the trade was successful,” Mikhail Alekseev, Deputy Governor of the Central Bank, said recently in an interview with Izvestia newspaper. On 5 October, following the signing of the contract for sale and purchase with PCI, market participants wondered who was behind the buyer of the Russian Federation credit institution and also what goals it was pursuing.
Investors
Pioneer Capital Invest Limited Liability Partnership is an investment and financial holding company founded by three non-profit charitable funds: “Nazarbayev Fund” Endowment Fund (61.8%), “Social Development Fund” Corporate Fund (20.55%), and “Development Fund” Corporate Fund (17.65%). PCI manages the money of these funds, and their beneficiaries are Nazarbayev University and Nazarbayev Intellectual Schools, which in effect earns money for the educational development of these academic institutions in Kazakhstan.
Endowment
Why did PCI, with Nazarbayev University and Nazarbayev Intellectual Schools behind it, and what do Kazakh educational institutions have to do with it? The answer to this question lies in the idea of endowment.
Endowment is a special capital of a non-profit organization formed through donations. The organization invests such capital (usually in management), and uses the income from investments to its statutory purposes. The interest on this capital provides a secure and long-term income by preserving the capital itself.
The word “endowment” means “contribution”, “gift”, “donation”. About $53.2 billion makes up the endowment and, with investment income from these funds, finances about a third of Harvard University’s annual budget, where the first endowment funds in the US originated. Yale’s endowment estimates at $42.3 billion, Stanford – $ 42 billion, Duke University – $12.7 billion and Cambridge University at around $9.5 billion. On the scale of the American economy, such amounts are quite significant.
Education always requires significant resources. Not only advanced universities are generators of knowledge, conducting applied and fundamental research, they are also the nucleus of innovation spirals that bring together business, science and society, grow technology start-ups, create world-class science centers as well as finally teach the skills needed in the future. Therefore, the main task of endowments is to ensure development through sustainable financing of universities. In essence, university endowments have become huge investment eco-systems, a smaller specialized version of national wealth funds or even funds for future generations.
The core capital is invested in shares, hedge funds and PE investment. The mission of the funds is to provide resources to all generations of students, faculty and staff now and in the long term. Each year, funds allocate 5-5.5% of assets to universities, and Kazakhstan adopts the best practices of the world’s best universities.
These endowments – “Social Development Fund”, “Development Fund” and “Nazarbayev Fund” – have been established in accordance with international best practices by Nazarbayev University and Nazarbayev Intellectual Schools and accumulate the endowment of partner companies, sponsors, university graduates, budget funds, as well as donations. The endowment itself is preserved, while the income from the management of the endowment is used for the institution’s needs. The Endowment Fund Board of Trustees decides on the purpose of the endowment.
Founded at the end of 2009 on the initiative of the country’s president, “Nazarbayev Fund” is the first of its kind in the Republic of Kazakhstan to be regulated by separate laws. The Foundation’s activities are based on the principles of autonomy, self-governance, collegiality in decision-making, social responsibility and transparency. Research programs, scholarships, grants and other statutory purposes are the main focus of the fund. “Social Development Fund” and “Development Fund” are essentially the same.
From School to university
In March 2006, President Nursultan Nazarbayev first put forward the idea of creating an internationally ranked university in Kazakhstan. The new institution was registered in the autumn of 2009 and classes began in September 2010. The goal of the university is to become an international-level research university, a leader in reforming the education system in Kazakhstan. And today it is the first university in the country whose activities are based on the principles of autonomy and academic freedom.
Nursultan Nazarbayev chairs the Supreme Board of Trustees, which in turn is the supreme governing body of the university, the intellectual schools and the foundation. The Board approves development strategies, University charters, intellectual schools and the fund, the order of disposal of property, establishes Regents of the University, intellectual schools and the foundation. The general management of the university is carried out by the Board of Trustees. Its competence includes approval of budgets, determination of the number of members of the executive body of the university, election of their managers and members, as well as early termination of their powers. In fact, the first president of Kazakhstan gave the university his name, but now it is already developing independently.
“Nursultan Nazarbayev has always paid great attention to the development of human capital and he was not afraid of experiments, and that’s how our university appeared. It is not just an educational institution, but also a large research center,” Mr. Shigeo Katsu – former Vice-President of the World Bank, and now Rector of Nazarbayev University said in his interview to the “Lenta.ru”. “Autonomy is a big responsibility, but at the same time we can determine what and how to teach, select international-level professors. That is why teaching is exclusively in English. Generally speaking, what comes to mind about Nazarbayev University is the following: the highest level of education and strict academic requirements for students and researchers. We are open to talents, about a quarter of our students are from vulnerable social classes, and no useful contacts will help with admission, everything is as transparent as possible. And finally, we do appreciate and develop the entrepreneurial spirit in our students – after all, this is Kazakhstan’s future,” Shigeo Katsu continued. – Creation of “Nazarbayev University” is an investment in the future, in the human capital of Kazakhstan, development of the entire economy of the country as a whole and its most important industries in particular. We believe that Nazarbayev University can become a key driver for the development of Kazakhstan, as it is designed not only to improve the quality of education, but also to become a platform for scientific and research activities. Today, its importance can hardly be overestimated”.
Today, Nazarbayev University has more than 4,600 students enrolled in 48 academic programs, developed jointly with global partner universities, and it can be said that the university, built on the principles of meritocracy and academic integrity, is a national project for Kazakhstan, capable of changing the entire country through modernization of the education system. Research is one of the key indicators of success. Since 2011, more than 2,600 research articles have been published by academics and students at NU, where 12.6% of the total number of publications are among the top ten most frequently cited worldwide. In 2016, Nazarbayev University was recognized by Thomson Reuters as the most frequently cited research institution in Kazakhstan. The top 10 international scientific journals published 28.4% of articles. Average weighted publication citation index was 1.23 in 2019, which is ahead of Lomonosov Moscow State University and almost on an equal footing with Seoul National University and the University of Tokyo. This figure is from 20 to 30% of the world ratings. There are no analogues of Nazarbayev University in the CIS, so its task for the next decade is to enter the top 100 best universities in Asia and the top 200 best universities in the world.
Although many students matriculate to other prestigious international universities in Europe, America and Asia, the role of “Nazarbayev Intellectual Schools” (NIS) in Kazakhstan’s national education system, including as a preparation stage for entry to Nazarbayev University, cannot be overlooked. In 2008, a project was launched to create NIS intellectual schools across Kazakhstan for exceptional students aged from 5 to 18 at the initiative of Nursultan Nazarbayev, as the country’s accelerated social and economic development at the beginning of the 21st century has created an urgent need for professionals with high levels of technical, managerial and leadership competence.
Modern forms of education management, implementation of innovative educational programs and research projects were not allowed to be properly implemented due to the existing requirements and standards of education in Kazakhstan. In this regard, on 19 January 2011 the law “On the status of “Nazarbayev University”, “Nazarbayev Intellectual Schools” and “Nazarbayev Fund” was adopted to introduce modern form of governance in education, development of academic freedom and autonomy, necessary for the implementation of innovative educational programs and research projects. According to the law, they have a special status, implying the right to independently approve educational curricula, establish requirements for entrance exams, ongoing monitoring of academic performance, intermediate and final certification, and more. Principle of academic freedom allows to accelerate development and testing of new programs, modernization of the secondary education system. And there are no analogues of “Nazarbayev University” in the CIS.
Currently, “Nazarbayev Intellectual Schools” comprise 21 educational institutions across the country, 16,000 students and 2,800 teachers. A third of graduates after graduation go to Nazarbayev University, and a quarter to foreign universities.
Perspective
It turns out that APB was acquired by a real institutional investor, whose portfolio includes various assets, including international ones. In Russia, PCI owns another bank, Kvant Mobile. “With strong positions in the eastern regions and Siberia with head offices in Moscow and Blagoveshchensk, the acquisition of a bank like Asia Pacific Bank provides a good foundation for expanding our financial group’s operations in Russia’s promising market. APB is fully in line with our group’s development strategy with its high Fitch rating of B+,” said Yevgeny Pan, member of the Management Board of Pioneer Capital Invest.
PCI, essentially, is private equity management for generating income for the university. Thanks to political stability, sound banking regulation and a high quality of human capital, they see new opportunities and a big market in Russia. Good relations between the two countries are an additional factor.
APB is the first successful sale of a turned around bank to a foreign investor. APB’s net profit for the first 3 quarters of this year reached 2 billion rubles showing steady profit. Kvant Mobile Bank’s net profit for the first 9 months of 2021 reached 330 million rubles and its loan portfolio stood at around 20 billion rubles.
Elvira Nabiullina, Head of the Central Bank, commenting on the sale of APB, named the sale price of the bank “good”. She explained that the regulator is committed to selling all the sanitized banks. In addition, it is an opportunity to compensate for the costs of rehabilitation. Thus, the situation turns out to be profitable for all parties. The Bank of Russia has successfully brought the bank to profit, put up for sale as a clear and transparent asset. And the expansion of presence of a new investor in the Russian banking market will help to maintain competition and further development of the sector.
Experts say that APB is a good asset for further development of banking business in Russia, in addition, it can be used to service Kazakh companies operating in the Russian Federation. And PCI plans to merge APB with Kvant Mobile Bank. At the same time, the APB brand name will be preserved, and the management team will expand. This will allow the Kazakh company to create a powerful financial institution in Russia, where other purchases of financial assets are possible. And the proceeds will be directed to educational activities in Kazakhstan. “We really see a great synergistic effect in the merger of banks,” Chairman of the Board of Directors of APB Yerbol Orynbayev said to “Lenta.ru”. – “Moreover, the work has already begun, but we must understand that this is not a quick process. The current management structure remains in place in both banks”.
Original source of article: European Business Magazine