The leading American investment companies, BlackRock and JPMorgan Chase, will help Ukraine to create the Fund for the Development of Ukraine – an investment bank for economic recovery after the war.

The Development Fund will attract low-cost loans from other states, donors and international financial institutions (IFIs) in a “blended finance” approach that has been used elsewhere, the FT reported on June 20. These are expected to be 5-10 times larger than private investments and amount to hundreds of billions of dollars. Priority will be given to the following sectors: infrastructure, climate and agriculture.

“There will be different sectoral funds that the fund identified as priorities for Ukraine. The aim is maximise capital participation,” Stefan Weiler, JPMorgan’s head of debt capital markets for central Europe, Middle East and Africa, told the FT.

Estimates of the cost of reconstruction vary widely but the World Bank, Ukrainian Government, European Commission and the United Nations think the total bill will come to $411bn in March. Others have put the figure as high as $1 trillion if all the economic costs are taken into account. The entire value of Ukraine’s pre-war economy was around $100bn.

“So many of today’s long-term challenges are best addressed through blended finance, and this is one. You need these vehicles to mobilise capital at scale,” said BlackRock vice-chair Philipp Hildebrand, as cited by the FT.

The Kyiv government hired BlackRock’s consulting arm in November to determine how best to attract the huge amount of capital needed, and then also invited JPMorgan to join the effort in February because of its experience in the debt markets.

The fund is still at a planning stage and is unlikely to be launched before the end of the war. However, this week, preliminary developments will be presented at the London Conference on the Reconstruction of Ukraine on June 21-22.

The size of the fund has not been determined but sources close to the talks told the FT that the fund is seeking to raise low-cost capital from governments, donors and IFIs and leverage it to attract between five and 10 times as much private investment.

It is expected that the fund's supervisory board will include IFIs, and investment professionals will provide direct management.

BlackRock and JPMorgan have offered to manage the fund pro bono, although the work will give them an inside track and an early look at possible investments projects.

In early conversations with potential private and public sector investors into the fund found they are not just leery of war risks but are also concerned with the country’s corporate governance, lack of transparency and shallow capital markets.

To overcome these fears, the organisers intend to stack the fund’s board with high profile international investors and government officials as well as hire investment professionals to execute the work. The hope is to put in place a strong corporate governance structure to allay investors' fears over the country’s shortcomings.

Ukraine will face a major challenge with raising investment capital following the eventual end of the war, especially if it ends with a frozen conflict with significant swathes of Ukrainian territory still occupied by Russian forces and the perennial threat of renewed hostilities that will pose a significant investment risk for private investors.

Following a similar logic, the UK said earlier this month it will attract investment by developing a military risk insurance scheme to convince investment, technology, energy and defence companies to support Ukraine's recovery with multi-billion-dollar investments.

Efforts are also being made to lobby countries not directly involved with Ukraine to help in its recovery. The UK is trying to convince the increasingly intimate Russian allies Saudi Arabia and Turkey to participate in the reconstruction conference, believing it will be a diplomatic victory and send a signal to Moscow.

According to the Minister of Reconstruction of Ukraine, Oleksandr Kubrakov, half of the reconstruction’s financing should be covered by the seized assets from the Russian Federation. Partners will fund another 25% through various mechanisms, and another 25% will come from Ukraine, Kubrakov said earlier this month.

Kubrakov noted that direct damage to Ukraine's infrastructure from the war amounts to $130bn-$140bn. Taking direct damage to infrastructure and the economy and business in general into account, this figure has long exceeded $300bn, Kubrakov added.

The most critical damage in Ukraine can be restored in two to three years if the necessary funds are allocated, says Kubrakov. The government official added that "if we talk about the economy in general, as soon as the country’s logistics are restored and there is no electricity supply shortage, then business activity will reach pre-war indicators in two years in a reconstruction boom."

The EU is still working on a mechanism for using frozen Russian assets to fund the reconstruction of Ukraine. As a representative of the European Commission, Christian Wiegand, explained there are two different elements: private assets and state assets.

Under EU laws it is easy to freeze assets and make them unavailable for use by their owners; however, technically the assets remain the property of their original owner. To seize the assets and transfer the ownership to someone else such as the courts or a government is much harder. In the case of individuals seizing assets is only possible after the owner has been convicted of a crime and the assets shown to be the result of illegal activity. In the case of a state-owned asset, it is only possible to seize them if the two states have declared war.

The amount of frozen private assets is at a €24.1bn equivalent. Discussions are currently underway with EU member states regarding their use for Ukraine.

"This work will have a result. Because in terms of criminal penalties, confiscation of assets is now possible when sanctions are circumvented. Discussions are ongoing, and we hope it will be approved very soon," the EC spokesman added.

As for state assets, the assets of the Russian Federation currently held in the EU amount to more than €200bn, mostly assets of the Russian Central Bank.

The future European Council should consider which option to choose from those proposed by the European Commission a few months ago. “The EU leaders should determine the best use of the accumulated interest from these assets by the EU," Wiegand noted, highlighting the fact that the EC still has not worked out a way to seize the assets themselves and is still only talking about using the interest earned from these assets being generated while they are frozen. Even this is legally questionable, say experts.