Private equity: your region needs you

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Private equity: your region needs you

12/05/2016 | Elliot Wilson Private equity across the CEE region is struggling. The EBRD is striving to fill the funding gaps, but it cannot do everything alone All rights reserved: bokstaz – Fotolia Private equity funding has never been in greater need in emerging Europe — yet has rarely been so hard to come by, particularly in peripheral states with low growth, throttling state control and little history of private investment. A recent report by the Polish Private Equity and Venture Capital Association noted that central and eastern Europe was “one of the most overlooked regions for private equity”. It found that while private equity fundraising accounts for 0.24% of GDP in Asia and 0.3% of GDP in western Europe, that number drops to 0.098% in CEE. To many the industry, which was gaining scale and confidence before 2008, never truly recovered from the financial crisis. That makes the role of private equity “more important to the region than ever before,” said André Küüsvek, director of local currency and capital markets development at the EBRD. “The big private equity firms want to invest in the big markets — no wants to invest in the likes of the Caucasus. And the pace of private equity funds popping up and raising money is much less than it was before.” He said the primary problem facing fast-growing young corporates looking for funding is the shortage of working private capital. “There isn’t much equity in the region at all, to be honest. Banking has become a lot more expensive in terms of capital liquidity requirements, so the ability of banks to finance more is significantly reduced.” That explains the EBRD’s elevated industry in seeking to make private equity meet the needs of thrusting young firms. The bank’s head of private equity funds, Anne Fossemalle, said it had been forced to become “a very active investor. “We’ve played a huge role in building up the industry, supporting funds that need it, and playing a vital public-relations role for the region. That’s so important, as global investors are putting much less [capital] to work in developing markets.” In recent years, the development bank has ploughed capital into a host of private equity funds and firms either based in or focused on the region. The list includes Moscow-based Baring Vostock Capital Partners and Dubai-based Abraaj Group, whose investments include Kazakhstan-based power cable firm Asia Electric and Turkish mattress maker BRN Sleep Products. HAND-HOLDING INVESTORS Even the EBRD’s investment in the industry vacillates, often wildly: data show the bank channelled €222m ($254m) into private equity funds, €80m in 2014, and €365m in 2013. One of the challenges is finding funds and firms willing to take a bet on the region. Fossemalle admitted the bank spent “a lot of time hand-holding potential investors, which is something we are happy to do. Our way of attracting new sources private equity is to offer free fundraising advice. Yes, the region is a tough sell but there are great opportunities out there.” She said the bank would spend the next five years “being active in every one of our regions”, seeking to help raise capital for private equity firms operating in markets” including Turkey, Central Asia, and the Western Balkans. “Our priority is to invest in good firms who add value to the economies in which they operate.” Küüsvek added: “The main challenge in smaller economies is the prevalence of family-run firms who aren’t used to outside shareholders coming in and demanding transparency. “But when they see competitors securing some extra working capital and getting a new investment partner, it starts to click. They say: ‘This clearly works for them; it could work for me too’.” Private equity funding has never been in greater need in emerging Europe — yet has rarely been so hard to come by, particularly in peripheral states with low growth, throttling state control and little history of private investment. A recent report by the Polish Private Equity and Venture Capital Association noted that central and eastern Europe was “one of the most overlooked regions for private equity”. It found that while private equity fundraising accounts for 0.24% of GDP in Asia and 0.3% of GDP in western Europe, that number drops to 0.098% in CEE. To many the industry, which was gaining scale and confidence before 2008, never truly recovered from the financial crisis. That makes the role of private equity “more important to the region than ever before,” said André Küüsvek, director of local currency and capital markets development at the EBRD. “The big private equity firms want to invest in the big markets — no wants to invest in the likes of the Caucasus. And the pace of private equity
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On May 12, 2016
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