Baltic GPs move upmarket

Since 2012, 10 funds based in the Baltic region have held final closes for an aggregate value of €482m. This volume could be more than doubled if plans for new vehicles are realised this year.

Funds in the market, or those expected to launch before the end of the second quarter of the year, are targeting a total volume of €986m across 10 vehicles. There has also been a significant increase in larger funds, with three GPs (INVL Asset Management, Baltcap Management and Livonia Partners) launching vehicles targeting €200m.

"We are currently raising the largest fund ever to invest in the Baltic region," INVL partner Deimante Korsakaite tells Unquote. Whether this will be true next year remains to be seen, as two of INVL's competitors are also currently attempting to take this mantle. However, after holding a close on €106m for the Baltic Sea Growth Fund earlier this year, INVL retains the bragging rights for the time being.

The entire continent has seen an uptick in the number of funds on the road and the volume of capital raised in recent years, with 2017 hitting a record, while 2018 dropped off slightly. But no other region has seen an increase as dramatic as the Baltic states. The combined volume of funds currently raising capital with a GP based in Latvia, Lithuania or Estonia is more than double the entire capital raised in the region since 2012.

By contrast, for the Nordic region this ratio would be 0.02%, as GPs have raised a combined total of €83bn since 2012 and funds currently in the market amount to approximately €1.8bn, according to Unquote Data.

The Baltic private equity firms are gravitating towards the Nordic region and the ties are getting stronger" – Kristjan Kalda, Baltcap Management

Nordic connection
However, in other respects the Baltic countries have a lot more in common with their Nordic neighbours than the rest of CEE. "We get grouped with funds from CEE, which many LPs have concerns about as a region. This seems unfair to us because the Baltic nations are northern European countries and the private equity ecosystem is closer to the Nordic countries in terms of maturity and return profile," says Korsakaite.

In 2017, several Estonian news outlets ran the story that the UN was reclassifying the Baltic countries from eastern European to northern European. In fact, there had been no change and all three nations had been classified as northern European since at least 2002, leading several sites to publish corrections.

Even so, recent developments have highlighted the growing ties between the Nordic and Baltic private equity communities. Says Kristjan Kalda, the chair of the Estonian Private Equity and Venture Capital Association and a partner at Baltcap: "The Baltic private equity firms are gravitating towards the Nordic region and the ties are getting stronger. Baltic venture capital firms have made a number of investments in other Nordic countries; just recently, BaltCap, the largest private equity manager in the Baltic region, chose Helsinki as its headquarters for Nordic Ninja VC fund, a joint venture with Japanese JBIC IG Partners."

Kalda points to geographic proximity, cultural closeness, openness of the economies, good business environment, high levels of innovation and relative size of the countries as factors that facilitate this closer relationship.

Despite this, Kalda acknowledges there is still work to be done: "The Baltic region is not yet in the geographic focus of international institutional investors. The relatively small size of the market is partly the reason, but the sizes of the funds and investments have grown by leaps and bounds in the past five years."

INVL's Korsakaite agrees with this analysis and it forms part of the rationale for the firm's new strategy. "The new fund will target investments in companies that require larger tickets than the other local private equity firms can offer, but still fall below the radar of the big international or pan-European investors," she says. A recent deal that fell into this category was Vilnius-based healthcare centre chain InMedica, which INVL acquired from BaltCap's Lithuania SME Fund earlier this year.

BaltCap's Kalda is positive that this type of activity will catch the eye of international LPs. "I do not think we have to do anything specific for [promoting] the Baltic region," he says. "It will be noticed by the deals we do and success of the fund managers."

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• Topics
• CEE
• Nordics
• Fundraising
• Baltics
• Baltcap Management Ltd