Would the real CEE please stand up?

A recently published article analysing private equity activity in Central & Eastern Europe suggests the region is "losing lustre with investors", with a wall of money being sought in the region, citing "172 private equity funds raising to invest exclusively in the territory or include it in their broader investment strategy".

Investor sentiment aside, the figure is unbelievable and should not be viewed as a sign of an overhang in the making. Hopping to Preqin's site (cited by the journalist as the source of the statistic) reveals that these funds are seeking a staggering €48bn combined. This would indicate that the majority of funds currently raising for European private equity are looking to invest in CEE. Your correspondent had a Preqin subscriber compile the list of all funds raising in Europe (including Russia and Turkey), and found there are 432 funds currently seeking $94bn – meaning CEE accounts for 64% of this (after you convert currencies).

Really?

There are certainly not 172 funds investing exclusively in CEE – not even a third that number – so the "include it in their broader investment strategy" is key here, and why the figure overstates the reality. The enormous CEE figure includes 51 real estate funds, so private equity purists can scratch them off.  Most pan-European funds invest within the European Union, and eight CEE countries fall within this, meaning nearly all pan-European funds can be said to be raising for CEE. Additionally, some funds explicitly state an ability to invest in CEE, though this is often a small percentage of the fund. So 172 vehicles may indeed be able to invest, but only a very small percentage of the non-dedicated funds' money will make its way there. Therefore the interpretation of these statistics may be misconstrued to suggest a bubble, when the region is anything but.

Of course, this is not to discredit Preqin's data, but to argue the interpretation of it – analysis that goes on to suggest very low deal activity means the capital is homeless.

Another article published a few days later by another publication indicated that investors were increasingly keen on the region, citing 42 funds seeking more than $12bn for CEE. The data is more realistic in that it is vastly different to the previous set, yet the article was also negative, suggesting "performance disappoints".

How credible are these insinuations when the EBRD, the region's largest investor, estimates there are only around 40 institutional-quality fund managers in the region altogether?

For argument's sake, let's ignore expert intelligence for a moment (EBRD) and assume there are actually 42 or even 172 GPs with PPMs out now. So what? The region's GPs may indeed be fundraising en masse, but so too are GPs in Western Europe. And in the US. Fundraising is lumpy by nature and it just so happens lots of investment periods are expiring now.

"These figures make no sense," says Petra Salesny (pictured) of Alpha Associates, which has operated CEE-focused funds-of-funds since 1998. "Private equity capital has always been scarce in CEE compared to other markets, which makes the investment opportunity in the region so attractive." According to Alpha, the total fundraising volume for CEE and CIS combined was only just over $5bn in 2008, which was a fundraising peak year, and since 2009 has stayed around the $1bn level each year.

This negativity suits some investors with a penchant for the region. As one LP said at this year's unquote" CEE Congress in April: "I love that LPs no longer find CEE sexy. It means there is less competition for me to get into funds in a region with a strong past and even more promising future."

It is believed EVCA will next week release its own statistics, which should paint a clearer picture of the current state of affairs, given EVCA works very closely with the major players there.

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