Experience in Financing Private Equity Funds in Central and Eastern Europe: Case Studies Kanako Sekine Director, Equity Funds Alessandra Pasian Principal Banker, Equity Funds
What is the EBRD? z
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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
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%
What are the EBRD’s objectives? z
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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
A unique profile z
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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
Committed and growing 32
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28 24 20 16 12
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8 4 0
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'98 '99 '00 '01 '02 '03 '04 '05 '06 Cumulative commitments €30.5 billion June 2006
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
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
EBRD portfolio by sector Financial Institutions 31.6% Transport 14.4% Power & Energy 8.2%
General Industry 12.5%
MEI 7.2% Agribusiness Energy 8.4% Property & Natural Efficiency Telecoms Tourism Resources 6.6% 0.2% 3.4% 7.4% June 2006
EBRD portfolio by facility type Other participating interest 9% Private loans 40%
Guarantees, etc 2% June 2006
Financial intermediaries 17%
State loans 24%
Direct equity 8%
PRIVATE EQUITY OVERVIEW
EUROPE OVERVIEW EVOLUTION ACTIVITY FLOWS € bi l l i on
100 90 80
Funds Raised
70
Investments
60
Divestments
50 40 30 20 10 0 1997
1998
1999
2000
2001
2002
2003
2004
2005
2006 Pre l i mi nary
Source: 2006 European Private Equity Survey Conducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA
EUROPE OVERVIEW INVESTED AMOUNT
€ bi l l i on
60 50
Buy out and Rep lacement Cap ital Venture Cap ital
40 30 20 10 0 1997
1998
1999
2000
2001
2002
2003
2004
2005
2006 Pre l i m i n ary
Source: 2006 European Private Equity Survey Conducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA
EUROPE OVERVIEW AMOUNT RAISED* € billion
100 90 80
Buyout
70
Venture Capital
60 50 40 30 20 10 0 1998
1999
2000
2001
2002
2003
2004
2005
2006 Pre liminary
*Graph excludes non-classified amounts Source: 2006 European Private Equity Survey Conducted by Thomson Financial and PricewaterhouseCoopers on behalf of EVCA and EVCA
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EBRD in Private Equity z
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EBRD’s portfolio of funds: ¾
Investment in 99 funds
¾
63 fund managers
¾
USD 2.3 billion in commitments (Eur 2.0 bn)
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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)
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Estimated Size of Private Equity Market 25
USD Billion
20
Plus 20% & EBRD Direct= Estimated total PE Market Including Non EBRD funds estimated capital Other parties committed EBRD committed
15
10
5
0 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
en
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EU
ce
ai n
an
Sp
s
d
nd
nl an
Fr
k
U K
ed
m ar
rla
Fi
he
Sw
N et
Sw
D en
PE investment as % of GDP*
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Scale of Private Equity 1.4%
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
Source: EVCA/Thompson Financial , EBRD estimates. 2005 data.
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EBRD Commitments Over Time Seven funds signed in 2006 for USD 254 million
z 300
Russia/CIS Privately Sponsored Russia/CIS Donor / EBRD-Sponsored CEE/SEE Privately Sponsored
USD Million
250
CEE/SEE Donor / EBRD-Sponsored
200
150
100
50
0
1992
1993
1994
1995 1996
1997 1998
1999 2000
Vintage Year Note: CSE and CIS, excludes property funds
2001
2002 2003
2004 2005
2006
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Investors by Type by Region: 2004 and 2005 700 CSE Funds
Transaction amount (USD Million)
600
Russia/CIS Funds
500 400 300 200 100 0 Banks
Corporate Investors
Note: Includes EBRD (in IFI / Govt)
Fund of Funds
IFI and Govt
Insurance Co.
Others
Pension Funds
Private
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2005 Investment Stage vs EVCA 100% 90% 80% 70%
Other
60%
Seed/Early Stage
50%
Expansion Sec. Purchase / Buyout
40% 30% 20% 10% 0% EVCA
CSE (EBRD)
Note: by investment cost of investments made in 2005
CIS (EBRD)
12
2005 Investment Sectors vs EVCA 100% 90% 80% 70%
Agriculture & Forestry Construction Primary & Energy Pharmaceutical & Medical Manufacturing Services TIM Consumer/Retail
60% 50% 40% 30% 20% 10% 0%
EVCA
CSE (EBRD)
Note: by investment cost of investments made in 2005
CIS (EBRD)
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EBRD Horizon Returns: All Funds
USD
EUR
Returns as at December 31 2005
One Year
Three Years
Five Years
Ten Years
Since Inception
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
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
CASE STUDIES
Case Study I Sponsored Fund: Romanian Post Privatization Fund
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VINTAGE: 1996
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FUND SIZE: EUR 44,000,000
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TC FUNDS: EUR 10,000,000
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INVESTORS: EBRD (57%), EU (34%), GP (9%)
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FUND STRATEGY: SMEs located in Romania
Case Study I Sponsored Fund: Romanian Post Privatization Fund
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INVESTED AMOUNT: EUR 38,200,000
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TC FUNDS USED: EUR 9,500,000 – –
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Management Fees: EUR 4,000,000 Consultants: EUR 5,500,0000
NO OF INVESTEE COMPANIES: 12
Case Study I Sponsored Fund: Romanian Post Privatization Fund
TC IMPACT ON FUND RETURNS: -
GROSS IRR: 21%
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NET IRR (of TC): 12%
Case Study I Sponsored Fund: Romanian Post Privatization Fund LESSON LEARNED: z
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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
Case Study II Follow-on Fund: GED Eastern Fund II z
VINTAGE: 2006
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FUND SIZE: EUR 150,000,000
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TC FUNDS: none
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SPONSORS: 3 international institutions
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INVESTORS: more than 30 international investors
Case Study II Follow-on Fund: GED Eastern Fund II
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COMMITTED AMOUNT: EUR 17,000,000 NO OF INVESTEE COMPANIES: 3 during first year of activity
Case Study II Follow-on Fund: GED Eastern Fund II z
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FUND STRATEGY: SMEs located in Romania and Bulgaria LOCAL PRESENCE: 2 offices (Bucharest and Sofia) with 11 professionals
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.
