CEE fundraising landscape in flux

For GPs and LPs alike, last year was a remarkable year for fundraising in the CEE region. Panel participants at the CEE M&A and Private Equity Forum in Warsaw agreed that fundraising targets were overreached, leading to peak levels of assets under management. In addition, 190 funds were closed with fundraising periods reduced by 30%.

Speaking in a keynote presentation at the conference, Barbara Nowakowska, managing director of the Polish Private Equity and Venture Capital Association (PSIK), noted that funds raised in the CEE region totalled €1.3bn last year. "Although it is still not close to levels raised in 2007, it is a significant 50% growth year-on-year from 2016," she said.

Towards the end of 2017, the fundraising landscape was punctuated by two notable final closes by upper-mid-market GPs, highlighting the positive sentiment of investors towards the market. In September, Abris closed its €500m Abris CEE Mid Market Fund III and Enterprise Investors held a final close for its Polish Enterprise VIII fund on €498m. While these GPs have since embarked on an acquisition spree across the region, other CEE funds have still been on the fundraising trail in 2018.

CEE is not the star performer, and this places fundraisers in the CEE region at the mercy of the market sentiment" – Krzysztof Kulig, Innova Capital

However, with the exception of upper-mid-market private equity house Mid Europa, which announced its Mid Europa V fund in January, the funds raising in the market are on the smaller end of the scale. For these players, fundraising in the CEE can be challenging, particularly for country-specific regional funds.

"Fundraising remains challenging for smaller funds, but the market reception has generally improved," says Bill Watson, partner at Value 4 Capital (V4C). The V4C Poland Plus Fund is targeting €150m in total and held a first close on €80m in January. The GP is expecting to hold a final close by the end of this year.

Domestic capital
Traditionally the European Investment Fund (EIF) and the European Bank for Reconstruction and Development (EBRD) have been the biggest supporters of smaller private equity funds in central and eastern Europe, and they have increased their allocations as fund activity has increased. "EBRD has been a very long-term supporter of funds in the region, helping to ensure a sense of continuity for other investors in these funds," says Watson. "Recently we see EIF has been writing much larger cheques to funds in tandem with their mandate to support the EU's growth agenda." Additionally, the Polish Development Fund (PFR) is working towards allocating domestic capital into funds.

Innova Capital sought out a less populated area of the market when fundraising for its Innova/6 vehicle. With a €20-25m ticket size, it is larger than V4C but smaller than Abris. Having started the investment period for Innova/5 in 2010, just as the market was reeling from the financial crisis, there was a significant time lapse until the fundraising processes for its sixth fund.

In the meantime, a number of fund managers have changed their tickets size, with many pursuing consolidation plays in the region. Consequently, much bigger allocations are becoming far more common in CEE, meaning not many of Innova's LPs opted to re-up. This meant the investment team needed to find new LPs. "CEE is not the star performer, and this places fundraisers in the CEE region at the mercy of the market sentiment," says Krzysztof Kulig, senior partner at Innova.

With waves of capital moving in different directions in the market, there are not many new players in private equity in the CEE region. Indeed, according to Unquote Data, of the CEE-focused funds to have held first or final closes since the start of 2017, just four have been raised by first-time managers: Espira Fund I, Taxim Capital Partners I, Zubr Capital Fund I and Karma Ventures I.

This, in turn, is forcing domestic capital to step in. Says Kulig: "Some programmes such as PFR are preparing to deploy domestic capital. In addition, in Poland an employee pension fund is expected to be operational next year."

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