fundraising special - BVCA admin

Country
Profile
Despite the size of Russia’s economy, it’s private equity industry punches well below its weight.
Alexander Pankov of Troika Dialog explains how the Russian Private Equity Initiative (RPEI) aims to
beef up the market.
The Russian private equity market represents one of the last untapped
territories for international investors. Despite almost 20 years of liberal
reforms and a fairly robust economic growth, the local alternative
investment industry is still nascent and strikingly small relative to GDP,
size of the consumer market and population. This phenomenon
makes Russia an outlier among other BRICs enjoying a steady flow of
foreign direct investment and a huge interest from global investment
firms. According to the Emerging Market Private Equity Association
(EMPEA), private equity penetration in Russia stands at 0.02% lagging
behind not only India and China (0.32% and 0.13% respectively), but
also Turkey (0.08%) and MENA (0.11%).
A turbulent rise of the local market in 2004 to 2008 (first LBOs, first
US$500m+ funds raised by Baring Vostok Capital Partners, Russia
Partners, etc.) and cash overhang was followed then by unprecedented
capital drought and industry deterioration caused by the credit
crunch. EMPEA figures point out that in 2009 Russia-focused firms
raised US$455m compared to almost US$4bn accumulated in India
and close to US$7bn in China. As a result the local private equity
20 January 2011 BVCA Briefing
The Russian
Private Equity
initiative
landscape has changed dramatically. The financial crisis has sparked
further consolidation of the market, strengthening the position of the
well-established players and nearly stalling the operations of many
first-time funds launched prior to the crisis. Debt-laden portfolio
companies have experienced great difficulties in restructuring and
the deleveraging process has been extremely painful.
In this environment many captive fund managers were spun out
and several institutional investors completely exited the asset class.
The drastic reshuffle coupled with the scarcity of capital and the
macro-economic uncertainty of the last few years resulted in a major
impediment for further development of the local private equity
industry. In 2009 total investments made by institutional funds were
well below US$300m, according to our estimates.
As a preliminary step to address these challenges and misperceptions
the Russian private equity community has reached a broad consensus
to join forces and improve the local private capital market. A group
of 15 leading GPs and service providers launched the Russian Private
Equity Initiative (RPEI) in the middle of last year as part of the
industry-wide effort to promote the Russia private equity asset class
domestically and internationally.
The four main goals of the RPEI:
• Raise awareness of private equity among Russian institutional
investors (predominately public and corporate pension schemes,
insurance companies, banks and sovereign entities)
• Create a more favourable legal environment for raising capital,
investment and management of private equity domiciled both in
Russia and other jurisdictions
• Promote Russian private equity in the global LP/GP community
and enhance its market position among other emerging
economies
• Set standards of professional conduct in corporate governance,
reporting and SRI, improving industry-specific business education
and professional qualifications
A critical element of this initiative is the Russian Private Equity
Performance Survey the RPEI has launched with Thomson Reuters,