The Emerging Europe PE landscape encompasses three sub-regions: Central Europe, Eastern and Southeastern Europe, and Russia and the Commonwealth of Independent States (CIS). Institutional investors building an EM PE allocation strategy often begin with Emerging Europe, potentially deemed lower risk due to economic ties to the EU. EMPEA’s 2008 LP Survey revealed that institutional investors will continue to allocate to CEE and CIS funds: 87% expected they would be active in the region within the next five years. In 2006 and 2007, 42 CEE and Russia/CIS funds collectively raised US$17.9 billion, compared to US$8.1 billion raised between 1998 and 2005. In 2007, the region saw five landmark funds break the US$1 billion mark.
The Central European markets of Poland, Hungary and the Czech Republic—the original “accession countries”—have led the development of private equity in the region, drawing more than half of investor commitments and nearly 75% of investment to date. While Poland in particular has a number of domestic country-dedicated fund managers, the majority of capital has been raised by regional funds, including two US $1 billion-plus funds closed in 2007 and 2008.
In 2007 and 2008, the pace of PE activity picked up significantly in the more nascent markets of Eastern and Southeastern Europe (Baltic countries and the Balkans and Turkey), including record-setting transactions over US$1 billion as well as the emergence of funds dedicated to Southeastern Europe.
Though classified as part of Emerging Europe, the PE landscape within Russia and CIS countries is characterized by a small number of primarily domestic PE firms that specialize on the unique characteristics of these markets. Development finance institutions, particularly the European Bank for Reconstruction and Development (EBRD), played a pivotal role in launching the local industry in the early 1990s. However, the PE market in Russia has remained relatively nascent, dwarfed by banks and industrial groups accounting for the bulk of M&A activity. The majority of PE investments are minority growth transactions, although at least two buyout investments took place in Russia in 2007 and 2008. A growing middle class in Russia and Ukraine has made consumer-related sectors attractive to investors, drawing roughly one quarter of investment.
Additional Resources:
EMPEA Research
(Available exclusively to EMPEA Members)
- QR CEE feature (2007)
- QR Russia feature (2005)
- EMPEA insight CEE/Russia (in production)
Members, please login here to access the files.