Experience in Financing Private Equity Funds in Central and Eastern Europe: Case Studies

Transcription

1 Experience in Financing Private Equity Funds in Central and Eastern Europe: Case Studies Kanako Sekine Director, Equity Funds Alessandra Pasian Principal Banker, Equity Funds

2 What is the EBRD? AAA-rated international financial institution founded in 1991, owned by 60 national and 2 supranational shareholders EBRD promotes transition to market economies in 27 countries from central Europe to central Asia The largest lender and private equity investor in this Region

3 Shareholding of the EBRD USA 10.1% Japan 8.6% EBRD region 8.5% excl EU members Others 11.3% EU [25] countries 61.5%

4 What are the EBRD s s objectives? To promote transition to market economies by investing mainly in the private sector To mobilise significant foreign direct investment To support privatisation, restructuring and better municipal services to improve people s lives To encourage environmentally sound and sustainable development

5 A unique profile Versatile financial instruments: providing debt, equity and guarantees Risk appetite: extending the financial capabilities of the private sector by mitigating political risks Legal know-how: in-depth knowledge of the region s legal systems and experience in resolving problems

6 Committed and growing '98 '99 '00 '01 '02 '03 '04 '05 '06 Cumulative commitments 30.5 billion Regional focus: supporting investors and local companies in 27 countries of CEE and CIS Asset base: over 1500 transactions worth 30 billion signed since 1991 Capital base: 20 billion dedicated exclusively to this Region June 2006

7 Active in all countries of operations Cumulative commitments 30.5 billion Russia & Central Asia 30.7% SE Europe & Caucasus 34.3% Central Europe 34.9% June 2006

8 EBRD portfolio by sector Transport 14.4% Power & Energy 8.2% Financial Institutions 31.6% General Industry 12.5% MEI 7.2% Energy Efficiency Telecoms 0.2% 7.4% Property & Tourism 3.4% Agribusiness Natural 8.4% Resources 6.6% June 2006

9 EBRD portfolio by facility type Private loans 40% Other participating interest 9% State loans 24% Guarantees, etc 2% Financial intermediaries 17% Direct equity 8% June 2006

10 PRIVATE EQUITY OVERVIEW

11 EUROPE OVERVIEW EVOLUTION ACTIVITY FLOWS billion Funds Raised Investments Divestments Preliminary Source: 2006 European Private Equity Survey Conducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA

12 EUROPE OVERVIEW INVESTED AMOUNT billion Buyout and Replacement Cap ital Venture Capital Preliminary Source: 2006 European Private Equity Survey Conducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA

13 EUROPE OVERVIEW AMOUNT RAISED* billion Buyout Venture Capital Preliminary *Graph excludes non-classified amounts Source: 2006 European Private Equity Survey Conducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA and EVCA

14 2 EBRD in Private Equity EBRD s portfolio of funds: Investment in 99 funds 63 fund managers USD 2.3 billion in commitments (Eur 2.0 bn) 851 underlying investments; 537 exited* Largest funds investment program dedicated to the region Helped to create new funds and secure TC funds when necessary Note: excludes real estate funds *Gross / company level data is to end 2005 (otherwise, data on this slide is December 2006 data)

15 5 Estimated Size of Private Equity Market Plus 20% & EBRD Direct= Estimated total PE Market Including Non EBRD funds estimated capital Other parties committed EBRD committed USD Billion EBRD committed (USD) Note: CSE and CIS, end 2005 data Other parties committed Including Non-EBRD Funds Estimated Capital Plus 20% & EBRD Direct = Estimated Total Private Equity Market

16 Slovakia Poland Croatia& Slovenia Baltics Russia Ireland Austria Romania Belgium Czech Republic Scale of Private Equity Scale of Private Equity 1.4% Denmark Sweden UK Netherlands Finland Spain France EU -15 Switzerland Germany Norway Greece Italy Portugal Hungary 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% PE investment as % of GDP* Source: EVCA/Thompson Financial, EBRD estimates data. 23

17 6 EBRD Commitments Over Time Seven funds signed in 2006 for USD 254 million Russia/CIS Privately Sponsored Russia/CIS Donor / EBRD-Sponsored CEE/SEE Privately Sponsored CEE/SEE Donor / EBRD-Sponsored USD Million Vintage Year Note: CSE and CIS, excludes property funds

18 Investors by Type by Region: 2004 and CSE Funds Russia/CIS Funds Transaction amount (USD Million) Banks Corporate Investors Fund of Funds IFI and Govt Insurance Co. Others Pension Funds Private Note: Includes EBRD (in IFI / Govt)

19 Investment Stage vs EVCA 100% 90% 80% 70% 60% 50% 40% Other Seed/Early Stage Expansion Sec. Purchase / Buyout 30% 20% 10% 0% EVCA CSE (EBRD) CIS (EBRD) Note: by investment cost of investments made in 2005

20 Investment Sectors vs EVCA 100% 90% 80% 70% 60% 50% 40% 30% Agriculture & Forestry Construction Primary & Energy Pharmaceutical & Medical Manufacturing Services TIM Consumer/Retail 20% 10% 0% EVCA CSE (EBRD) CIS (EBRD) Note: by investment cost of investments made in 2005

21 6 EBRD Horizon Returns: All Funds Returns as at December One Year Three Years Five Years Ten Years Since Inception USD EBRD Private Equity Portfolio* 58.5% 38.7% 20.1% 13.2% 12.2% S&P 500** 6.3% 12.9% 1.3% 3.8% 4.2% Cambridge Emerging Markets Venture Capital & Private Equity Index 21.9% 19.2% 5.0% 4.1% N/A EUR EBRD Private Equity Portfolio* 82.6% 31.4% 13.5% 11.6% 10.8% EVCA, All Private Equity 33.8% 6.3% 2.0% 11.4% 10.3% FTSE Emerging Markets Eastern Europe** 77.0% 49.7% 27.2% 21.1% N/A Source: Cambridge Associates, EVCA, Bloomberg and EBRD * EBRD portfolio pooled end-to-end return, net of fees, expenses, and carried interest. Excludes property funds, and includes liquidated partnerships. ** Calculated assuming the same investment (cash flow) pattern of EBRD s portfolio of private equity funds since the relevant horizon

22 CASE STUDIES

23 Case Study I Sponsored Fund: Romanian Post Privatization Fund VINTAGE: 1996 FUND SIZE: EUR 44,000,000 TC FUNDS: EUR 10,000,000 INVESTORS: EBRD (57%), EU (34%), GP (9%) FUND STRATEGY: SMEs located in Romania

24 Case Study I Sponsored Fund: Romanian Post Privatization Fund INVESTED AMOUNT: EUR 38,200,000 TC FUNDS USED: EUR 9,500,000 Management Fees: EUR 4,000,000 Consultants: EUR 5,500,0000 NO OF INVESTEE COMPANIES: 12

25 Case Study I Sponsored Fund: Romanian Post Privatization Fund TC IMPACT ON FUND RETURNS: - GROSS IRR: 21% - NET IRR (of TC): 12%

26 Case Study I Sponsored Fund: Romanian Post Privatization Fund LESSON LEARNED: Identify fund managers locally based with track record and sufficient resources to promote management support Investment strategies to reflect the realities of the market TC funds locked for long-term projects Returns on equity funds on a full cost basis (net of TC) Active participation by EBRD

27 Case Study II Follow-on on Fund: GED Eastern Fund II VINTAGE: 2006 FUND SIZE: EUR 150,000,000 TC FUNDS: none SPONSORS: 3 international institutions INVESTORS: more than 30 international investors

28 Case Study II Follow-on on Fund: GED Eastern Fund II COMMITTED AMOUNT: EUR 17,000,000 NO OF INVESTEE COMPANIES: 3 during first year of activity

29 Case Study II Follow-on on Fund: GED Eastern Fund II FUND STRATEGY: SMEs located in Romania and Bulgaria LOCAL PRESENCE: 2 offices (Bucharest and Sofia) with 11 professionals

30 Copyright 2007 EBRD. All Rights Reserved This material is for the recipient s private information. No part of this document may be reproduced or transmitted in any form or by any means, including photocopying and recording, without the written permission of the Bank. Such written permission must also be obtained before any part of this publication is stored in a retrieval system of any nature. While the information contained herein was compiled by the EBRD, we do not guarantee its accuracy or completeness. We accept no liability in relation to use of this information. Copyright 2007 European Bank for Reconstruction and Development. All rights reserved.