Voucher Privatization Funds
in the Russian Federation

Voucher privatization funds invested a significant share of vouchers issued as part of the Russian mass privatization program. About 500 active funds collected 23.2% of the total number of vouchers distributed. The five largest voucher funds account for a large share (about 27%) of the vouchers that the voucher funds collected. More generally, the distribution of vouchers collected is strongly skewed towards a small number of relatively large funds.

However, relative to state and insider ownership, the ownership share of voucher investment funds is small. The total ownership stake of voucher investment funds in privatized enterprises is only about a fourth of their share of total vouchers. Voucher funds had to buy ownership shares on open auctions, which featured much higher share prices than the closed auctions through which insiders were able to purchase shares. As result, voucher funds' ownership share is only 5.7% as compared to their 23.2% share of vouchers' collected. Moreover, funds' ownership shares in firms in which they invested are relatively small.

The criteria by which funds chose investments seem to reflect a short-term orientation. Funds attached much importance to profitability, which reflects current cash flows, and liquidity of the firms' shares, which indicates the importance of opportunities for changing one's holdings. By contrast, access to investment sources such as state credits or non-state financing were relatively unimportant investment criteria. Such investment is likely to be necessary for significant restructuring and changes in enterprise operations.

Voucher funds' ability to influence the performance of enterprises depends on a number of factors. Without access to enterprise financial information, funds are severely constrained in their ability to evaluate existing policy and contribute to formulating new policy. Given their relatively small ownership stakes, funds also need to secure the cooperation of other shareholders to put forward new initiatives. The evidence suggests that funds have been most successful in securing cooperation with management, as opposed to workers or administrators of the state shares. Existing management is probably the least likely owner to recognize and endorse the need for managerial and operational change.

An alternative to attempting to influence enterprise performance under an existing ownership stake is to buy or sell shares. Funds reporting that they actively trade on the secondary market for enterprise shares amount to 57% of the total number of funds, and 25% of funds' companies are traded on average. Most funds trade privately and through local or regional exchanges. Participants in trades are primarily other voucher funds, while managers are particularly reluctant to sell shares. The effect of trading among voucher funds is primarily to consolidate among funds the shares in given enterprises. Such consolidation can increase a fund's ability to exert influence on enterprise restructuring, but a fund's potential influence is ultimately constrained by the size of stakes that the state and insiders hold and their willingness to consider divestiture.

topic Enterprise Restructuring in the FSU