fundraising & investor appetite: cee as a mainstream market? richard sachar, almeida capital 23...

Fundraising & Investor Appetite:CEE as a Mainstream Market?

Richard Sachar, Almeida Capital

23rd September 2008

3rd Annual Private Equity in CEE

LP Allocation

LP Appetite

Raising a CEE Fund

Attractive fund types for LPs worldwide LP APPETITE FUNDRAISINGAllocation

-1-

Source: LP Allocation to Private Equity 2008, Almeida Capital survey (130 LPs)

77%

77%

72%

72%

49%

44%

Small Buyout

Medium Buyout

Special Situations

Growth/ Development Capital

Cleantech/ Sustainable Energy

Large Buyout

Mezzanine

Venture Capital

Direct Secondary Purchase

Infrastructure

Dedicated Secondary Funds

Real Estate

41%

51%

40%

36%

39%

24%

… and for European, N American, Asian LPs LP APPETITE FUNDRAISINGAllocation

-2-


Europe North America Asia

85%

82%

77%

71%

51%

48%

45%

42%

38%

38%

24%

48%

75%

77%

80%

74%

53%

42%

68%

42%

39%

38%

21%

42%

51%

61%

37%

72%

34%

14%

39%

26%

48%

22%

32%

34%

Small Buyout

Medium Buyout

Special Situations

Growth/Development Capital

Cleantech/Sustainable Energy

Large Buyout

Mezzanine

Venture Capital

Direct Secondary Purchase

Infrastructure

Dedicated Secondary Funds

Real Estate

18%

27%

29%

29%

50%

52%

58%

58%

62%

69%

81%

89%Western Europe

North America

India

CEE

China

Other Asia

Japan

Australasia

South Africa

Latin America

Israel

MENA

Geographic interest of LPs worldwide


LP APPETITE FUNDRAISINGAllocation

-3-

Global LPs 2008 allocation changes

Allocation Increase


LP APPETITE FUNDRAISINGAllocation

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2%

5%

8%

15%

17%

18%

28%

32%

35%

36%

37%

38%India

CEE

China

Other Asia

Western Europe

Japan

Australasia

North America

Latin America

MENA

Israel

South Africa 2%

5%

3%

2%

18%

5%

5%

6%

2%

2%

2%

2%

Allocation Decrease

Experienced investors remain positive LP APPETITE FUNDRAISINGAllocation

-5-

Mid-Market Buyout Growth / Expansion Mezzanine Venture

‘Central European buyout was not affected by the leverage bubble – and is unlikely to be hit too hard by the credit crunch.’

‘This is a good time to invest with managers in the buyout arena. GPs should be able to pick up some good deals at very reasonable valuations’

Source: Interviews with LPs active in CEE.

‘Expansion capital is interesting across the region but particularly in Russia, which is a huge market, of course.’

‘Growth/expansion is particularly interesting in CIS.’

‘Mezzanine has become a very interesting opportunity in CEE.’

‘The mezzanine market in CEE may catch up with Western European levels over the next couple of years.’

‘Early stage venture capital is still underdeveloped and there are not enough proven managers.’

‘There have been some good exits of venture-backed companies, all via trade sales.’


Experienced LPs believe the market is developing well

LP APPETITEMARKET FUNDRAISING

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‘We are increasing our CEE exposure in two ways: through GPs focused on the region and via our investments in pan-European funds that are

increasingly looking at CEE.’

‘The awareness and knowledge of private equity has really improved in the region.’

‘GPs are putting more capital to work and find attractive investment opportunities, which means LPs can increase their allocations.’

‘With so many more GPs and LPs active in the region, it is easier to carry out due diligence and get referrals.’


Capital will continue to flow into the regionLP APPETITEMARKET FUNDRAISING

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‘We look with interest at the next-accession-wave countries and plan to put more money into those.’

‘Our confidence in the region is increasing and we now have a dedicated CEE fund of funds.’

‘The amount of capital invested in CEE will always depend on whether the few big players are currently in the market. When they raise money, a lot of capital flows into the region. The smaller funds are too small and too

few to make up for it when the big funds are not in the market.’

‘We are looking at more managers in the region now, particularly in Russia.’


Experienced investors are happy with the riskLP APPETITEMARKET FUNDRAISING

-8-

‘Risk profiles across the region vary enormously. While the EU accession countries are actually quite similar to Western Europe now when it

comes to risk, the other countries are different.’

‘We have no issues with risk in the EU accession countries.’

‘The EU countries have no extra risk attached, but we are not always so sure about the risk-return profile in the other countries.’

Popular countries and regions LP APPETITEMARKET FUNDRAISING

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Major PE markets

‘Poland and Romania remain favourite destinations for

capital.’

‘While the risk in CIS remains much higher than in CEE, we feel confident that the return

potential is high too.’

Risky CIS

‘The growth of the Ukrainian private equity market is limited

by the small number of players.’

Ukraine needs to grow

‘Russia’s credentials remain basically unchanged, despite

the recent conflict.’

Russia still unchanged


Disappointments remain LP APPETITEMARKET FUNDRAISING

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Lack of consistency

‘Team turnover is disappointing as international

firms poach talent.’


Fear of overcrowding

‘We focus our DD even more on industry sectors now because we worry a few sectors are becoming

rather overcrowded.’

Lack of incentives

‘Countries across the region have very different approaches toward providing tax incentives.’Risk factors

‘Political stability does not go far enough, reform

programmes are needed.’

‘Regulatory risk remains a concern in some parts of the

region.’

Segregation and diversity

‘We would like to see private equity markets across CEE

link up in a similar way as the Nordic do.’

Source: Almeida Capital research

Fundraising targets for CEE FUNDRAISINGLP APPETITEMARKET

Screening or investing in CEE

-11-

186

820

186

820

312

728Not interested in CEE

100% = 1006 LPs 100% = 1040 LPs

Fundraising: what’s different for CEE?

Professionally produced and in-depth materials now the ‘norm’

Identify very best quality prospects or fail with timewasters

Compelling, well supported story now the ‘norm’

Extensive information requests and LP issue resolution now the ‘norm’

Material preparation

LP targeting Presenting thestory

Projectmanagement

More detail and more contextual material required

CEE

General

LP targets harder to identify

LP misconceptions and lack of knowledge to overcome

Much greater support required to get LPs over the line


CD-Rom DUE DILIGENCE

Strictly Confidential

FUNDRAISINGLP APPETITEMARKET

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Fundraising: show me the money

‘Bought-in’ Already investing or allocated

‘On the line’ Need help or push

‘On the way’ Need lots of research & support

‘Miles behind’ Won’t commit during this cycle


5%

60%

20%

10%

10%


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Fundraising: show me the money


5%

60%

20%

10%

10%‘Bought-in’

‘On the line’

‘On the way’

‘Miles behind’


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Fundraising: dos and don‘ts

• Focus on LPs that are ‘on-the- line’

• Be meticulous and professional about your preparation

• Commit the right level of resources and support

• Only use an advisor or agent who has successfully raised money for CEE before


• Lose momentum with ‘researchers’ or ‘timewasters’

• Cut corners on planning, due diligence and material preparation

• Fail to respond to LPs or underestimate the workload

• Risk your reputation or future on anyone that hasn’t delivered on CEE before

CD-Rom

DUE DILIGENCE

Strictly Confidential


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Richard Sachar

Almeida Capital Limited

Burleigh House

357 Strand

London WC2R 0HS

+44 (0)20 7845 7575

[email protected]

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fundraising & investor appetite: cee as a mainstream market? richard sachar, almeida capital 23...

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