INVL closes Baltic Sea Growth Fund on €165m

The fund, which had a target of €200m, held a first close on €106m in February 2019. In September 2019, the fund held an interim close on €142m.

Domiciled in Lithuania, the fund's management fee, carry and hurdle rates are in accordance with market standards. The entire fund life is 10 years, with two optional one-year extensions.

Deimantė Korsakaitė, executive partner of INVL Baltic Sea Growth Fund, said of the fundraise: "Investors are overlooking that the Baltic region combines high-growth economies, increasing consumer demand, strong EU political and judicial institutions, and the fact that the region does not have unmanageable political risks like in some emerging markets."

She added: "Top-line growth in many Baltic countries remains 2x or close to 2x above that of companies in major western European markets. Even though the region combines many of LPs' desired traits, it does not get increased allocations from investors."

She also cited the concerns of LPs in the region regarding exit avenues: "Investors struggle with exiting if their companies are big for the region (€20-100m), but still too small for investors from outside the region."

"This means the company will struggle to exit and will stay at the same one-digit EBITDA multiple valuation," she said. "Our strategy is to invest in those companies that are already large enough for the region, or if they are smaller then use a clear buy-and-build case, and use those companies as a platform for regional expansion that can compete on a truly global basis and attract foreign investors."

The fund's predecessor, Invalda INVL, recorded an average 27% gross IRR and 2.4x money on its realisations, according to a statement.

Investors
The European Investment Fund (EIF) acted as an anchor investor for the fund, committing €30m. Fund-of-funds Baltic Innovation Fund, Estonia-based LHV pension funds and INVL pension funds also invested. Other LPs include corporate investors and high-net-worth individuals from the Baltic region.

The fund had a minimum commitment size of €5m for the master fund, with a much lower minimum commitment for the feeder fund.

Korsakaitė said: "We have very strong support from the regional investors who know us, the Baltic market and the opportunities that it provides very well, but it was difficult to fundraise outside the region."

"Baltic region is still considered as part of the CEE region instead of being acknowledged as the new Nordics," she said. "Private capital activity in CEE is dwarfed by that of its continental neighbours and the Baltics is even more overlooked and underfunded, as it attracts just a fraction of CEE's fundraising."

"Many LPs are looking to deploy tickets of at least €50m and not to commit more than 10% of the fund target and think they get exposure to the region via the top names."

Investments
The fund will invest in companies based in the Baltic Sea region, deploying tickets of €10-30m. It will also consider companies based in Poland, the Nordic region and central and eastern Europe. The fund is sector-agnostic.

LPs have confirmed an interest in co-investing with the fund, which will allow the management team to consider equity investments of up to €100m.

It will focus on growth capital, buyout and buy-and-build investments, and is expected to make 8-12 investments in total. It will take both majority and significant minority stakes.

The firm will deploy capital over the next two to three years. It has acquired a controlling stake in Montuotojas and a 70% stake in Inmedica Chain so far. The fund has an expected average holding period of five to seven years.

Korsakaitė said: "We are actively working on a number of transactions with promising growth prospects, and analysing opportunities that comply with the fund's strategy on an ongoing basis."

People
INVL Asset Management – Darius Šulnis (managing partner); Deimantė Korsakaitė (executive partner).

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