Russia’s invasion of Ukraine has greatly diminished private equity investment in Central and Eastern Europe in 2022, but the region continues to attract capital.
Even in peacetime, fundraising in the region was lower than in the rest of Europe. This is partly due to the underdevelopment of many countries in the region, such as Albania, Kosovo and Moldova, and the PE industry’s relative immaturity in the region’s developed economies such as Poland.
According to PitchBook data, total capital raised by CEE-focused funds, and the number of them, reached a peak in 2017 and 2018, respectively. In 2018, 12 funds with a specific CEE focus—including country-specific funds—raised €1.22 billion combined.
A look at the top five fund closes since 2016 shows that three funds emanated from either Russia or Ukraine—with the former being home to the largest fund in the region, the €811 million Russia-Turkey Investment Fund, managed by the state-owned Russian Direct Investment Fund, which launched in 2018.
With neither Russia nor Ukraine being in a position to raise funds this year, the region would have to rely on its other powerhouses of Poland and the Czech Republic to make up for the shortfall. However, these countries have also been impacted by the conflict—especially Poland, due to its proximity to Ukraine.
The top LPs supplying commitments to funds investing in the CEE region are government organizations such as Luxembourg-based European Investment Fund and Edinburgh-based European Bank for Reconstruction and Development, PitchBook data shows.
There are few domestic LPs in the region, which is partly due to structural issues. Poland, for example, only allows pension funds to allocate 5% to alternative asset classes such as private equity. Other countries in the region such as Croatia have similar restrictive regimes.
Of the top 10 LPs making commitments in the region, only three are in CEE countries. Czech banking institute Česká Spořitelna has made three allocations, while its country peer Vienna Insurance Group has made one. Estonia’s bank LHV Group has also made one commitment, with the vast majority of investment coming from elsewhere in Europe or indeed the world.
Featured image by evan_huang/Shutterstock
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