LP interview: Talis Capital's Vasile Foca and Matus Maar

Anneken Tappe: If you look at your clients' investment needs over the past five years, what has changed? What are they looking for now as opposed to then?

Vasile Foca: Before 2008 and the crisis, high-net-worth families were not looking into progressive investments very much. They were happy with the Goldman Sachs, Credit Suisse and hedge fund placements. The shift the crisis brought was dramatic. It led them to thinking about where to deploy their capital. Back in the day, they just did not need to do that. But they decided they needed to have direct ownership of assets; that is where private equity comes in. It gives families a more proactive role and control. For that, however, they must have a controlling stake, preferably with little leverage and in asset-backed companies. By a 'controlling stake', we mean 60-100% ownership and by 'little leverage', we mean a very reasonable amount, like 25%. This need was pretty much the reason why Talis was set up as a business.

Matus Maar: The needs of high-net-worth individuals have changed and so has the perception of risk in the investment community. A triple-A rated bond is not the safest bet out there anymore. Private equity has the advantage of actual assets and ownership. Before, a lot of high-net-worth families engaged in direct minority investments, but they would not perform well, because investments like that require a lot of work. We are engaging with management teams and making investments more profitable. Another thing that changed about private equity in the past couple of years is the popularity of exit routes.

Vasile Foca and Matus Maar discuss opportunities in CEE and favoured exit routes

AT: Would you prefer a trade sale or a secondary buyout?

VF: Well, there are four options for exits: IPOs, secondary buyouts, strategic sales and recapping capital through banks' involvement. IPOs are rare with a market this tough. Of course secondary buyouts are an option, but financial buyers pay less than corporates. Working with banks to recover capital requires a really good relationship with them and they would probably have been involved with the business before. All in all, trade sales are preferable.

MM: Also, with a trade buyer you are more likely to have a cash buyer, which is desirable.

AT: What are your thoughts on moving capital during the eurozone crisis into safe havens like Germany or the Nordics?

MM: We haven't actually invested in Germany so far. We would love to, but we are targeting high returns and that just won't happen in a place like that.

VF: We are not geography-driven but sector-driven investors and we follow that strategy very closely.

AT: Which sector do you think has the most potential in your main investment region, Central and Eastern Europe?

VF: That depends on the preferred risk-return profile, but infrastructure has a lot of potential.

MM: Agriculture in Ukraine is very profitable. It is impossible to get the same returns in Poland, because of the high land prices, European agriculture subsidies and a difficulty to consolidate larger clustered pieces of agricultural land.

AT: Which countries in CEE have the most potential?

VF: Central Europe and Eastern Europe have very different risk profiles. That is an important point to remember when calling it 'CEE'. Poland and Romania have the most economic growth potential. They have the human capital, infrastructure and relative currency strength; those two are a good choice for the medium-long term. In Eastern Europe, Ukraine has a lot of potential. The logistics for its growth are in place and the east is generally very commodity and resource driven. In 2009, we sold an asset to a trade buyer after a holding period of two years – for 60% IRR. You won't achieve that anywhere else in the world, not in Poland, Brazil or the US.

MM: A lot of people have focused on Poland and that is understandable, it looks very good on paper, but because of that it is now very overpriced.

AT: Is regulation or the lack thereof an issue when you are investing in CEE?

VF: Investors who want high returns are willing to take a certain amount of risk. Our clients know that returns are higher in CEE, so they are happy to go with the risk-profile attached to those investments.

AT: What is the impact of the eurocrisis in CEE, for example in Ukraine?

VF: You can feel the crisis everywhere, because the banking sector is shrinking. For Western European banks, the first things they liquidate are CEE assets, because of their risk profiles, which I think is wrong. But as I said before, agriculture is a well-performing asset-backed sector that is not impacted as much.

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