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Fundraising & Investor Appetite: CEE as a Mainstream Market?

Fundraising & Investor Appetite: CEE as a Mainstream Market?. Richard Sachar, Almeida Capital 23 rd September 2008 3 rd Annual Private Equity in CEE. LP Allocation LP Appetite Raising a CEE Fund. LP APPETITE. FUNDRAISING. Allocation. Attractive fund types for LPs worldwide.

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Fundraising & Investor Appetite: CEE as a Mainstream Market?

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  1. Fundraising & Investor Appetite:CEE as a Mainstream Market? Richard Sachar, Almeida Capital 23rd September 2008 3rd Annual Private Equity in CEE

  2. LP Allocation LP Appetite Raising a CEE Fund

  3. LP APPETITE FUNDRAISING Allocation Attractive fund types for LPs worldwide Small Buyout Mezzanine Medium Buyout Venture Capital Special Situations Direct Secondary Purchase Growth/ Development Capital Infrastructure Cleantech/ Sustainable Energy Dedicated Secondary Funds Large Buyout Real Estate Source: LP Allocation to Private Equity 2008, Almeida Capital survey (130 LPs) -1-

  4. LP APPETITE FUNDRAISING Allocation … and for European, N American, Asian LPs Europe North America Asia Small Buyout Medium Buyout Special Situations Growth/Development Capital Cleantech/Sustainable Energy Large Buyout Mezzanine Venture Capital Direct Secondary Purchase Infrastructure Dedicated Secondary Funds Real Estate Source: LP Allocation to Private Equity 2008, Almeida Capital survey (130 LPs) -2-

  5. LP APPETITE FUNDRAISING Allocation Geographic interest of LPs worldwide Source: LP Allocation to Private Equity 2008, Almeida Capital survey (130 LPs) -3-

  6. LP APPETITE FUNDRAISING Allocation Global LPs 2008 allocation changes Allocation Increase Allocation Decrease Source: LP Allocation to Private Equity 2008, Almeida Capital survey (130 LPs) -4-

  7. LP APPETITE FUNDRAISING Allocation ‘Central European buyout was not affected by the leverage bubble – and is unlikely to be hit too hard by the credit crunch.’ ‘Expansion capital is interesting across the region but particularly in Russia, which is a huge market, of course.’ ‘The mezzanine market in CEE may catch up with Western European levels over the next couple of years.’ ‘Early stage venture capital is still underdeveloped and there are not enough proven managers.’ ‘This is a good time to invest with managers in the buyout arena. GPs should be able to pick up some good deals at very reasonable valuations’ ‘Growth/expansion is particularly interesting in CIS.’ ‘Mezzanine has become a very interesting opportunity in CEE.’ ‘There have been some good exits of venture-backed companies, all via trade sales.’ Experienced investors remain positive Growth / Expansion Mezzanine Venture Mid-Market Buyout Source: Interviews with LPs active in CEE. -5-

  8. FUNDRAISING LP APPETITE MARKET Experienced LPs believe the market is developing well ‘With so many more GPs and LPs active in the region, it is easier to carry out due diligence and get referrals.’ ‘GPs are putting more capital to work and find attractive investment opportunities, which means LPs can increase their allocations.’ ‘The awareness and knowledge of private equity has really improved in the region.’ ‘We are increasing our CEE exposure in two ways: through GPs focused on the region and via our investments in pan-European funds that are increasingly looking at CEE.’ Source: Interviews with LPs active in CEE. -6-

  9. FUNDRAISING LP APPETITE MARKET Capital will continue to flow into the region ‘Our confidence in the region is increasing and we now have a dedicated CEE fund of funds.’ ‘We look with interest at the next-accession-wave countries and plan to put more money into those.’ ‘We are looking at more managers in the region now, particularly in Russia.’ ‘The amount of capital invested in CEE will always depend on whether the few big players are currently in the market. When they raise money, a lot of capital flows into the region. The smaller funds are too small and too few to make up for it when the big funds are not in the market.’ Source: Interviews with LPs active in CEE. -7-

  10. FUNDRAISING LP APPETITE MARKET Experienced investors are happy with the risk ‘The EU countries have no extra risk attached, but we are not always so sure about the risk-return profile in the other countries.’ ‘We have no issues with risk in the EU accession countries.’ ‘Risk profiles across the region vary enormously. While the EU accession countries are actually quite similar to Western Europe now when it comes to risk, the other countries are different.’ Source: Interviews with LPs active in CEE. -8-

  11. FUNDRAISING LP APPETITE Major PE markets Russia still unchanged ‘Poland and Romania remain favourite destinations for capital.’ ‘Russia’s credentials remain basically unchanged, despite the recent conflict.’ MARKET Risky CIS Ukraine needs to grow ‘While the risk in CIS remains much higher than in CEE, we feel confident that the return potential is high too.’ ‘The growth of the Ukrainian private equity market is limited by the small number of players.’ Popular countries and regions Source: Interviews with LPs active in CEE. -9-

  12. Risk factors ‘Political stability does not go far enough, reform programmes are needed.’ Fear of overcrowding ‘We focus our DD even more on industry sectors now because we worry a few sectors are becoming rather overcrowded.’ ‘Regulatory risk remains a concern in some parts of the region.’ FUNDRAISING LP APPETITE Lack of consistency Lack of incentives ‘Countries across the region have very different approaches toward providing tax incentives.’ ‘Team turnover is disappointing as international firms poach talent.’ MARKET Segregation and diversity ‘We would like to see private equity markets across CEE link up in a similar way as the Nordic do.’ Disappointments remain Source: Interviews with LPs active in CEE. -10-

  13. LP APPETITE FUNDRAISING MARKET Fundraising targets for CEE 100% = 1006 LPs 100% = 1040 LPs Not interested in CEE Screening or investing in CEE Source: Almeida Capital research -11-

  14. LP APPETITE FUNDRAISING CD-Rom DUE DILIGENCE Strictly Confidential MARKET Fundraising: what’s different for CEE? Material preparation LP targeting Presenting thestory Projectmanagement General Professionally produced and in-depth materials now the ‘norm’ Identify very best quality prospects or fail with timewasters Compelling, well supported story now the ‘norm’ Extensive information requests and LP issue resolution now the ‘norm’ CEE LP targets harder to identify LP misconceptions and lack of knowledge to overcome Much greater support required to get LPs over the line More detail and more contextual material required Source: Almeida Capital research -12-

  15. LP APPETITE FUNDRAISING MARKET Fundraising: show me the money ‘Bought-in’ Already investing or allocated ‘On the line’ Need help or push ‘On the way’ Need lots of research & support ‘Miles behind’ Won’t commit during this cycle Source: Almeida Capital research -13-

  16. LP APPETITE FUNDRAISING MARKET Fundraising: show me the money ‘Bought-in’ Here's the money! ‘On the line’ ‘On the way’ ‘Miles behind’ Source: Almeida Capital research -14-

  17. LP APPETITE FUNDRAISING CD-Rom DUE DILIGENCE Strictly Confidential MARKET Fundraising: dos and don‘ts   • Focus on LPs that are ‘on-the- line’ • Be meticulous and professional about your preparation • Commit the right level of resources and support • Only use an advisor or agent who has successfully raised money for CEE before • Lose momentum with ‘researchers’ or ‘timewasters’ • Cut corners on planning, due diligence and material preparation • Fail to respond to LPs or underestimate the workload • Risk your reputation or future on anyone that hasn’t delivered on CEE before Source: Almeida Capital research -15-

  18. Richard Sachar Almeida Capital Limited Burleigh House 357 Strand London WC2R 0HS  +44 (0)20 7845 7575 rsachar@almeidacapital.com -16-

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