US Secretary of State, John Kerry, visited Russia this month in an attempt to improve US-Russian relations amid the ongoing crisis in Ukraine. Among talk of an increasingly hostile relationship between the US and Russia, such political challenges could make fundraising in the Central and Eastern Europe (CEE) region more difficult.
Preqin’s Fund Manager Profiles online service shows there are currently 172 private equity fund managers that exclusively invest in the CEE region. An overwhelming 96% of these firms are headquartered in a CEE country, giving some indication as to the tendency of GPs in lesser developed private equity markets to maintain solely a domestic reach for their investments. Over the past 10 years, fund managers looking to invest in CEE as part of a wider geographical focus have raised $543bn, with an estimated $154bn in dry powder. In comparison, those GPs that focus solely on the region have accumulated just $16bn over the past decade, with approximately $5bn in dry powder available to deploy.
As the below table illustrates, of all the private equity firms that have an investment focus on CEE-based countries, Mid Europa Partners has raised the largest amount of capital over the past decade. The London-based firm has accumulated $4bn over the past 10 years – 25% of all capital raised by the 172 firms in this timeframe – and currently invests across the CEE region with a particular focus on Turkey. Turkey is an outstanding example of a CEE state, with a relatively strong economy and developed private equity market providing a more favourable investment landscape for GPs. The other firms that feature in the list of the 10 largest fund managers with an investment focus on CEE are all located within the region itself, with the exception of Austria-based firm Syntaxis Capital.
It remains to be seen whether the political and economic issues affecting parts of Central and Eastern Europe will have long lasting negative impacts on opportunities for private equity fund managers. 2014 saw a number of firms abandon CEE-focused fundraising efforts, notably by Blackstone and DMC Partners, indicating that investors’ and GPs’ confidence in the region is waning. Moving forwards, increased stability within the CEE region is likely to stop repeats of GPs pulling the fundraising plug.