(Bloomberg) — Cash is king when managing money in Russia.Three decades after the collapse of communism there are at least 163,176 millionaires in the country, according to Knight Frank LLP. Of their combined assets, 26 percent are in cash, the highest level in the world. It’s more than twice the proportion in Europe and almost three times that in the U.S.Russian conservatism is driven by history: The country’s rough transition to capitalism was followed by a series of currency devaluations, most recently in 2014. There’s little trust in the state or risky financial products sold by banks and there’s an understanding at any moment a new crisis may erupt, said Olga Raykes, co-founder of family office Confideri.”You always need liquid cash to continue running a decent lifestyle or to inject working capital to save a business,” Raykes said.Many of Russia’s wealthy keep their money in deposit accounts, especially with concerns that global growth is slowing. Deposit rates have risen during the past two years after the U.S. central bank tightened policy, with customers able to earn 2.8 percent in U.S. dollars risk-free. Another benefit — the ruble has depreciated almost 50 percent against the dollar since 2014, when the U.S. first imposed sanctions on Russia.”The dollar is seen as a safety asset that can secure savings,” said Alexey Novikov, a managing partner at Knight Frank.High-net worth individuals in Russia have also steered clear of certain financial products. “Rich Russians are scared of complicated financial products,” said Oleg Tsarkov, general director at Phoenix Advisors.That’s changing as banks ratchet up marketing efforts and deposit rates in Russian banks start to decrease. The share of investment products in portfolios of wealthy clients in local private banks has grown from 15 to 20 percent during the last two years, according to research firm Frank RG.Russian customers have become more open to alternative investment products, and are gradually reducing the cash share in portfolios, by about 1 percent annually, said Ewgeni Smuschkovich, market head for Russia, Central and Eastern Europe in Julius Baer Group Ltd.Still, it’s hard to get over the need for conservatism and the way Russians want to run their businesses aggressively, while making sure their other personal assets are secure.”One has risky business in Russia, and this war chest that cannot be put at risk,” said Andrei Ivanov, who helps manage $450 million at Leon Family Office in Moscow. Ivanov said that the share of cash in some of his clients portfolios has risen during the last year to 30 percent.
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