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Will the Crisis in Crimea have an Impact on Private Equity in Ukraine and Russia?

by Luke Goldsmith

  • 03 Apr 2014
  • PE

The ongoing crisis in Ukraine and more specifically the recent annexation of the Crimea region by the Russian government has the potential to deter investors and private equity firms from making commitments in both countries. The uncertainty surrounding the remaining duration of the crisis could lead to portfolio companies in Ukraine losing value and private equity firms becoming less willing to risk investing in the volatile state that the country is in. Furthermore, there is a likelihood that with sanctions put on Russia, including limiting investment into the country from the US and the EU, levels of private equity investment could drop significantly. 

Preqin’s Funds in Market shows that there are 13 funds that are currently raising capital with the aim to target Ukraine as part of a wider geographic investment focus. The majority of these funds are aimed at Central and Eastern Europe as a whole and importantly, there are no funds being raised that are focused solely on Ukraine. The last private equity fund to reach final close that has a specific focus on Ukraine is the VISUM Small Hydropower Energy Fund, which garnered €20mn to acquire interests in brownfield and secondary stage small hydropower (SHP) plants. The infrastructure fund closed in June 2013 after launching in August 2010. 

In Russia, there are concerns that sanctions imposed by the West will affect the overall economy, with assets frozen and a reduction in trade in particular having major impacts. Before the disruptive events of 2014, the Russian Direct Investment Fund and other private equity players were highly focused in boosting foreign trade into the country. Indeed, the RDIF has raised three joint ventures with South Korea, Japan and Italy in order to develop economic cooperation, trade and investment between each respective nation. They also currently have two more joint venture capital funds on the road with France and China. 

The last solely Russia-focused fund to close, the HI Capital Mezz Fund II which looks to invest mezzanine capital into various types of firms in the country, was over five months ago. Additionally, out of the 12 exclusively Russia-focused funds that were in market this time last year, nine are still in the process of fundraising. These private equity funds aiming to secure over €3.1bn in total capital commitments whereas at the beginning of April 2013 there were less funds raising, with a higher aggregate target amount of €3.7bn.

 

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