Performance of Private Equity Funds in Central and Eastern ... · USD Net IRR of 8.6%; TVPI of...
Transcript of Performance of Private Equity Funds in Central and Eastern ... · USD Net IRR of 8.6%; TVPI of...
© EBRD 2005, all rights reserved
EBRD’sEBRD’s Annual Investor Forum Annual Investor Forum on Performance of on Performance of
Private Equity Funds in Central Private Equity Funds in Central and Eastern Europe & the CISand Eastern Europe & the CIS
1010thth October 2005October 2005
© EBRD 2005, all rights reserved
AgendaAgenda
Overview: 2004 – A Record YearHenry Potter
Exits – Enter the IPOSylvia Gansser-Potts
What Will Drive Future Returns?Henry Potter
Net Results and Future OpportunitiesMarek Kiezun
Roundtable: New Regions, New Investors? Kanako Sekine
Additional Data & Definitions
© EBRD 2005, all rights reserved
OverviewOverview2004 2004 –– A Record YearA Record Year
Henry PotterSenior Banker, EBRD
10 October 2005
© EBRD 2005, all rights reserved
1
ThemesThemes
Portfolio Overview
Market Estimates
2004 Results
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2
2004: A Breakthrough Year?2004: A Breakthrough Year?
Private equity returns can now be measured in the region
2001 Sample:643 investments
175 exits 2004 Sample:802 investments
424 exits
-200
0
200
400
600
800
1,000
1,200
1,400
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
USD
Mill
ion
Funds Raised (p.a.)
Net Gain (cum.)Gross Proceeds to Funds (p.a.)
1,600
Early Days
First Boom
Slow Down
Second Boom
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Portfolio OverviewPortfolio Overview
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3
EBRD in Private EquityEBRD in Private Equity
EBRD’s portfolio of funds:Investment in 88 funds
58 fund managers
USD 1.8 billion in commitments
802 underlying investments; 424 exited
Largest funds investment program dedicated to the region
Note: excludes real estate funds
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EBRD DatabaseEBRD Database
Best available sample of PE performance in the region
Tracks all “gross” investments made by EBRD invested funds as well as “net” returns
Measured in USD (EUR in data pack)
Obligatory reporting by fund managers, scrutinised by EBRD
– comprehensive performance, no survivor bias
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5
EBRD Net Portfolio at a GlanceEBRD Net Portfolio at a Glance
USD Net IRR of 8.6%; TVPI of 1.38x; DPI of 0.73x as of end 2004
USD
Mill
ion
1,133
1,791
NAV830
Returned731
0200400600800
1,0001,2001,4001,6001,8002,000
Funds Committed Paid In NAV + Returned
1,561
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Market EstimatesMarket Estimates
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6
Scale of Private EquityScale of Private Equity
Private equity investments in the region were still well below Western levels at end 2004
0.0
0.2
0.4
0.6
0.8
1.0
1.2
UK
Swed
en
USA
Fran
ce
EU-1
5
Spai
n
Ger
man
y
Port
ugal
Hun
gary
Italy
Switz
erla
nd
Pola
nd
Irela
nd
Rom
ania
Cze
ch R
ep.
Rus
sia
Bal
tics
% o
f GD
P
Source: Thomson Financial
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7
Estimated Size of PE MarketEstimated Size of PE Market
EBRD data sample comprises about one-third of all funds and half of known funds in the region
$1.8b
$4.5b $4.5b $4.5b
$7.3b $7.3b
$6.4b
$1.8b $1.8b $1.8b0
5
10
15
20
EBRD Committed EBRD Funds‘Committed Capital
Including KnownNon-EBRD FundsEstimated Capital
Plus 20% & EBRDDirect = Estimated
Total Private EquityMarket
USD
Bill
ion
$1.8b
$6.3b
$13.6b
$20.0
Note: cumulative since inception of EBRD funds program in 1992
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2004 Results2004 Results
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EBRD Net Gain Over Time USD EBRD Net Gain Over Time USD vsvs EUREUR
Strong 2004 in both USD and EUR
-50
0
50
100
150
200
250
300
350
400
450
500
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
CC
Y M
illio
n
EUR Cumulative Net ResultUSD Cumulative Net Result
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EBRD’sEBRD’s Net Cash FlowsNet Cash Flows
2004 was a record year for distributions2005 will be better
0
50
100
150
200
250
300
350
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 3Q05
USD
Mill
ion
Disbursements Distributions
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10
Gross Cash Flows Gross Cash Flows –– CE/SE RegionCE/SE Region
Steady increase in investments & distributions
0
50
100
150
200
250
300
350
400
450
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
USD
Mill
ion
Annual Investments by Funds (Cash Out)
Annual Proceeds to Funds (Cash In)
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Gross Cash Flows Gross Cash Flows –– Russia/CIS RegionRussia/CIS Region
0
50
100
150
200
250
300
350
400
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
USD
Mill
ion
Annual Investments by Funds (Cash Out)
Annual Proceeds to Funds (Cash In)
Spectacular distributions; declining investments
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Portfolio Snapshot: All FundsPortfolio Snapshot: All Funds
FR & PR combined: 1.91x TVPI, 19% IRR
$929m
$2,074m$271m$371m
$925m$1,612m
$2,078m
0
1000
2000
3000
4000
5000
6000
Investments at Cost$3,183m
Total Value$5,082m
USD
Mill
ion
Fully Realised (FR/FR) Written Off (FR/WO)Partly Realised (PR) Unrealised (UR)
Overall TVPI 1.60x, 15.0% IRR
UR TVPI 1.29x, 8.1% IRR
PR TVPI 2.50x, 23.9% IRR
FR&WO TVPI 1.73x, 17.5% IRR
FR FR TVPI 2.23x, 25.6% IRR
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IRRsIRRs & TVPI by Fund Classification& TVPI by Fund Classification
USD ALL Institutional Quality Survivor
IRR TVPI IRR TVPI IRR TVPI
GROSS: Fully Realised 25.6% 2.23x 27.4% 2.35x 31.8% 2.61x
GROSS: Fully Realised & Written-off
17.5% 1.73x 19.7% 1.82x 25.7% 2.15x
GROSS: All 15.0% 1.60x 16.5% 1.64x 20.2% 1.78x
© EBRD 2005, all rights reserved
Copyright 2005 EBRD. All Rights ReservedCopyright 2005 EBRD. All Rights Reserved
This material is for the recipient’s private information. No part of this document may be reproduced or transmitted in any form or by any means, including photocopying and recording, without the written permission of the Bank. Such written permission must also be obtained before any part of this publication is stored in a retrieval system of any nature. While the information contained herein was compiled by the EBRD, we do not guarantee its accuracy or completeness. We accept no liability in relation to use of this information. Copyright 2005 European Bank for Reconstruction and Development. All rights reserved.
© EBRD 2005, all rights reserved
Exits Overview Exits Overview Enter the IPOEnter the IPO
Sylvia Gansser-PottsSenior Banker, EBRD
10 October 2005
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1
Table of ContentsTable of Contents
Exits in 2004
Exits over Time
Enter the IPO
– Poland
– Russia
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2004 Exits 2004 Exits -- A Cash Rich YearA Cash Rich Year
A record USD 755m was harvested by the funds
88 investments were realised (including 12 write-offs)
Surge of partial realisations
Marked increase in valuations of PRs
Slowdown in write-offs
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2004 Exits by Country2004 Exits by Country
0
50
100
150
Baltics Czech/Slovakia
Hungary Poland Romania Russia C. Asia OtherS.Europe
USD
Mill
ion
Investment Profitability
Investment Cost
Biggest volume in Poland and Russia;Central Asia, Baltics and Romania most profitable
Note: includes write-offs
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2004 Exits by Sector2004 Exits by Sector
TIM and Energy were the most profitable sectors
0
25
50
75
100
125
Agri. & Fores
tryConstr
uction
Consumer
Manufac
turing
Pharma & M
edica
lPrim
ary &
Energy
Service
s
TIMWholes
ale &
Reta
il
USD
Mill
ion
Investment Profitability
Investment Cost
Note: includes write-offs
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Exits Over TimeExits Over Time
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Exit Performance Over TimeExit Performance Over Time
Surge in exits in 2004 – Is there an upturn in TVPI?
3.86x
1.87x 1.80x2.25x 2.24x
1.91x 1.83x 2.01x
0
100
200
300
400
500
600
1997 1998 1999 2000 2001 2002 2003 2004Exit Year
USD
Mill
ion
Investment CostsExit ProceedsTVPI
Note: excludes write-offs
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Exit Proceeds vs. ValuationExit Proceeds vs. Valuation
Consistent up-lift in value on exits
0
200
400
600
800
1000
2002 2003 2004 8mo2005
USD
Mill
ion
Investment CostValuation at Prior Year EndExit Proceeds
Note: Includes write-offs. Preliminary sample for 2005.
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Type of Exits Over TimeType of Exits Over Time
Multiple exit routes dominated by trade sales and public exits
0
50
100
150
200
250
300
350
1996 1997 1998 1999 2000 2001 2002 2003 2004
Exit Year
Exit
Proc
eeds
(USD
Mill
ion)
Trade Sale Public Exit
MBO Other
Note: excludes write-offs
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Performance by Exit TypePerformance by Exit Type
Public markets are the most profitable exit route
0.02x
1.66x 1.56x
2.10x
3.20x
0
200
400
600
800
1,000
1,200
Write-Off Other MBO Trade Sale Public Exit
USD
Mill
ion
Investment Costs
Exit Proceeds
TVPI
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Enter the IPO Enter the IPO
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Exit Proceeds by Exit Type Exit Proceeds by Exit Type
Increase in exits through public markets
0
100
200
300
400
500
600
1997 1998 1999 2000 2001 2002 2003 2004Exit Year
Exit
Proc
eeds
(USD
Mill
ion) Public Exits
Other Exits
Note: data from EBRD portfolio only
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10
Public SalesPublic Sales
Polish & Russian companies dominate sales on public exchanges
$53m
$338m
$286m
$99m
$38m
0
50
100
150
200
250
300
350
400
Hungary / Czech Rep.
Poland Russia C.Asia Other
Exit
Proc
eeds
(USD
Mill
ion)
Note: data from EBRD portfolio only; excludes unsold stake of listed companies
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11
PostPost--IPO ReturnsIPO Returns
Burren Energy's share price has increased six-fold since listing on LSE
0
200
400
600
800
1000
Dec
-03
Mar
-04
Jun-
04
Sep-
04
Dec
-04
Mar
-05
Jun-
05
Sep-
05
Pric
e pe
r Sha
re (U
SD)
$839.50
$136.50
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TVPI by Exit Type TVPI by Exit Type –– Russia & PolandRussia & Poland
Public exits outperformed trade sales in both countries
2.94x
2.00x1.68x
3.91x
2.28x1.92x
0.00x
0.50x
1.00x
1.50x
2.00x
2.50x
3.00x
3.50x
4.00x
4.50x
Public Exit Exits Overall*Trade Sale
TVPI
x
PolandRussia
* Excluding write-offs
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13
Returns Driven by Growth and Returns Driven by Growth and Multiple ExpansionMultiple Expansion
Poland RussiaComp Rzeszów (IT services) Kalina (cosmetics producer)
$10m $10m
$37m
$32m
At Exit
$56m $56m
$24m
$105m
At ExitAt Entry At Entry0
10
20
30
40
50
60
70
80
90
Com
pany
Val
uatio
n (U
SD M
illio
n)
0
20
4060
80
100
120
140
160
180
200
Com
pany
Val
uatio
n (U
SD M
illio
n)
Value from multiple expansion Entry valuationValue created by EBITDA growth
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IPO Activity by Stock ExchangeIPO Activity by Stock ExchangeWSE attracts the largest number of IPOs;
Russian offerings spread over several exchanges
7 IPOs1 IPO
4 IPOs
2 IPOs
54 IPOs
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
RTS/MICEX NYSE LSE AIM WSE
Offe
ring
Valu
e (U
SD B
illio
n)
Russian companiesPolish companies
Source: LSE, WSE, MICEX, RBC, IPO Watch by PWC
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Warsaw Stock ExchangeWarsaw Stock Exchange
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15
Market Cap and Relative SizeMarket Cap and Relative Size
WSE has the largest market cap in CE/SE, but its relative size as a % of GDP is still low (EU average - 80%)
0
10
20
30
40
50
60
70
80
90
100
Austria Poland Czech Rep. Hungary Romania
USD
Bill
ion
Market Capitalisation
26%
14%
34%33%
26%
Percentage of GDP
Sources: S&P, IFC, FEAS, WB, stock exchanges as of December 2004
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16
WSE WSE -- Main FeaturesMain Features
250 listed companies (incl. 7 foreign companies)
5 companies account for over 50% of trading
Average P/E at 14.9 in 2005 (YTD)
Foreign investors account for 43% of equity trading (33% in 2004), domestic institutional 33%, individuals 24%.
Source: WSE
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WSE WSE -- Sector BreakdownSector Breakdown
Source: CEE Stock Market Report, September 2005, IntelliNews
Finance and TIM sectors dominate
Food4%
Oil & Chemicals
15%
Metals5%
Construction4%
Finance45%
TIM20%Other
4%
Wholesale & Retail3%
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Activity on WSEActivity on WSE
Most active stock exchange in CESE/CIS region
Second largest number of IPOs in Europe after London in 2004
– 36 IPOs raised USD 4 bn in 2004
– 28 IPOs raised USD 2 bn in 2005 (YTD)
Continuous bull market since 2003
– WIG +28% in 2004*
– WIG +27% in 2005 (9 months)*
* calculated in local currency
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19
Investor BaseInvestor Base
Large inflow of capital
Domestic investor base fuelled by growth of pension funds
Reallocation of household savings driven by falling interest rates
Foreign institutional investors attracted by higher growth rates
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20
Polish Pension Funds’ AssetsPolish Pension Funds’ Assets
Pension funds are an important driver of the equity market
0
10
20
30
40
50
60
2002 2003 2004 2005E 2006E 2007E 2008E 2009E
Tota
l AU
M (U
SD B
illio
n)
Domestic Public Equities Allocation
Other Allocation
Source: CAIB, Enterprise Investors
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21
WSE Going ForwardWSE Going Forward
Rate of capital inflow outstrips the supply of investment targets
Possible alliance with a foreign stock market
Well regulated market will continue to serve as an exit route for the private equity industry
© EBRD 2005, all rights reserved
Copyright 2005 EBRD. All Rights ReservedCopyright 2005 EBRD. All Rights Reserved
This material is for the recipient’s private information. No part of this document may be reproduced or transmitted in any form or by any means, including photocopying and recording, without the written permission of the Bank. Such written permission must also be obtained before any part of this publication is stored in a retrieval system of any nature. While the information contained herein was compiled by the EBRD, we do not guarantee its accuracy or completeness. We accept no liability in relation to use of this information. Copyright 2005 European Bank for Reconstruction and Development. All rights reserved.
© EBRD 2005, all rights reserved
What Will Drive Future Returns?What Will Drive Future Returns?Henry Potter
Senior Banker, EBRD
10 October 2005
© EBRD 2005, all rights reserved
1
Visions of the FutureVisions of the Future
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2
ThemesThemes
Unrealised investments: how do they look?
Onset of buyouts and leverage
Valuation & gearing of CE/SE buyouts
What companies, where, are getting invested
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3
Survivor SnapshotSurvivor SnapshotGPs that are still in business have good track records
$640m
$1,670m$140m$257m
$749m$1,338m
$1,803m
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Investments at Cost$2,375m
Total Value$4,224m
USD
Mill
ion
Fully Realised (FR/FR) Written Off (FR/WO)
Partly Realised (PR) Unrealised (UR)
Overall TVPI 1.78x, 20.2% IRR
UR TVPI 1.35x, 9.9% IRR
PR TVPI 2.91x, 28.4% IRR
FR&WO TVPI 2.15x, 25.7% IRR
FR FR TVPI 2.61x, 31.8% IRR
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The Unrealised PortfolioThe Unrealised Portfolio
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4
Investments En Route to ExitInvestments En Route to Exit
73 partly sold investments: 2.5x, 24% IRR
USD 606m of remaining value
62% in the top 7 exposures, 6 of which have been exited or are publicly traded
37% exposure to one company - stock price is up 88% YTD 2005 on LSE
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5
2004 Exits by Vintage: Russia/CIS 2004 Exits by Vintage: Russia/CIS
Post crisis investments are driving the good performance
2004 Exits: 1.12xALL Exits: 2.07x
2004 Exits: 2.77xALL Exits: 2.04x
2004 Exits: N/AALL Exits: 0.99x
01020304050607080
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Investment Year
Inve
stm
ent C
ost (
USD
Mill
ion)
FR exited in 2004
UR90100
Note: Includes WO
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6
2004 Exits by Vintage: CE/SE 2004 Exits by Vintage: CE/SE
Crucial 1999-2001 vintages starting to show performance
Note: Includes WO
2004 Exits: 1.43xALL Exits: 1.97x
2004 Exits: 1.74xALL Exits: 1.05x
2004 Exits: 0.52xALL Exits: 0.52x
0
50
100
150
200
250
300
350
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Investment Year
Inve
stm
ent C
ost (
USD
Mill
ion) FR exited in 2004
UR
400
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7
Unrealised Investments Unrealised Investments by Investment Stageby Investment Stage
Buyouts are being written up
0
100
200
300
400
500
600
700
800
900
1,000
Expansion Sec. Purchase/Buyout
Seed/Early Stage Other
USD
Mill
ion
Investment CostInvestment Value
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Evolving Investment ProfilesEvolving Investment Profiles
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8
Investments by Investment StageInvestments by Investment Stage
Buyouts are now a significant feature of the PE landscape
0
50
100
150
200
250
300
350
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Inve
stm
ent C
ost (
USD
Mill
ion) Expansion
Sec. Purchase / BuyoutSeed/Early StageOther
Investment YearNote: Investments organised by vintage year (i.e. year of original investment not cash flow)
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9
2004 Investments’ Stage: CE/SE vs. EU2004 Investments’ Stage: CE/SE vs. EU
Proportion of buyouts is getting close to European levels
0
10
20
30
40
50
60
70
80
Expansion Sec. Purchase / Buyout Seed/Early Stage
% o
f Inv
estm
ent C
ost
EVCA
CE/SE
Note: percentages are of total investment made in 2004 by investment cost
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10
Exits to Management Exits to Management –– Leverage Leverage EffectEffectCompanies can now be sold to management at fair value
0
20
40
60
80
100
120
140
160
180
Pre-2003 2003-2004
USD
Mill
ion
Investment Cost
Exit Proceeds
TVPI 2.10x
TVPI 0.67x
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11
Deal Size Ranges Over TimeDeal Size Ranges Over Time
Deal sizes are increasing
Investment Year
0
50
100
150
200
250
300
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Inve
stm
ent C
ost (
USD
Mill
ion)
Above USD 10.0mUSD 5.0m - 10.0mUSD 2.5m - 5.0mBelow USD 2.5m
Note: Investments organised by vintage year (i.e. year of original investment not cash flow)
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12
Performance by Investment Stage and Performance by Investment Stage and Exit TypeExit Type
Expansion Sec. Purchase / Buyout
Start Up /Early Stage
Trade Sale 2.48x 2.30x 0.98x
3.64x
0.14x
Flotation / Secondary
Sale3.17x 2.02x
Exit to Management 1.62x 0.87x
Note: x = TVPI. Sample of 306 investments (FR & PR, excluding WO); total proceeds of USD 2.0 billion
© EBRD 2005, all rights reserved
13
Investment & Exit StrategiesInvestment & Exit Strategies
Expansion capital dominatesBuyout track record is limited
BO = Secondary Purchase / Buyout EX = Expansion MBO = Management BuyoutPO = IPO / Public Market SU = Seed / Start-Up TS = Trade Sale
EX to TS40.5%
EX to MBO10.4%
SU to PO5.1%
EX to PO23.3%
BO to PO5.0%
SU to TS6.7%
Other0.7% BO to TS
8.3%
Note: Sample of 306 investments (FR & PR, excluding WO); total proceeds of USD 2.0 billion
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14
2005 Exit Proceeds by Investment Stage2005 Exit Proceeds by Investment Stage
Expansion28%
Other Buyouts
51%
LBO17%
Start-Up / Early Stage
4%
Expansion capital now a minority
Note: 2005 exits data is drawn from an incomplete sample to August 2005
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15
Geographic TrendsGeographic Trends
Increasing activity in South-Eastern Europe
2004 Investments by Cost 2005 Exits by Proceeds
Poland20%
(other)C.Europe
13%
Romania40%
Bulgaria11%
Russia/CIS16%
Russia/Ukraine
9%
Moldova8%
Bulgaria39%
Hungary9%
S.Europe(other)
4%
Poland21%
C.Europe(other)10%
Note: 2005 exits data is drawn from an incomplete sample to August 2005
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16
2004 Investment Sectors: CE/SE vs. EU2004 Investment Sectors: CE/SE vs. EU
More manufacturing & consumer based investments to come?
0
10
20
30
40
50
60
Consumer/Retail
Manufac-turing
Pharma &Medical
Services TIM Primary &Energy
% o
f Inv
estm
ent C
ost
EVCA CE/SE
Note: percentages are of total investment made in 2004 by investment cost
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17
Top 10 EU “Sunrise” RegionsTop 10 EU “Sunrise” Regions
1. Prague Czech R. 178%2. Budapest3. Bratislava4. Közép-Dunántúl
5. Lithuania Lithuania 167%
6. Stredne Slovakia 163%
7. Nyugat-Dunántúl Hungary 161%
8. Vychodne Slovakia 160%
9. Jihovychod Czech R. 158%
10. Zapadne Slovakia 156%
172%HungarySlovakia 168%
167%Hungary
Source: CEBR www.cebr.comRankings based on (i) growth prospects, (ii) education, (iii) market size, (iv) access to EU fundingAverage EU score 100%
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18
CEBR Sunrise StudyCEBR Sunrise Study
“Regions in the east that have just entered the Union offer a highly skilled pool of labour at wages well below that paid to equally skilled
workers in the West.”*
* Jonathan Said, CEBR economist, January 2005
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19
Valuations & Leverage: CE vs. EuropeValuations & Leverage: CE vs. Europe
Leverage & valuations are significantly lower than in Europe
Europe(inc. UK)
CE10
UK Europe(ex. UK)
CE10
CE9
0
1
2
3
4
5
Deb
t / E
BIT
DA
0123456789
10111213
EV / EBIT
Leverage Valuations
Sample: 10 leveraged transactions by CE/SE GPs in 2003-4 vs comparables for the same period for Europe Sources: PPM Managers and EBRD estimates from 4 CE GPs, S&P, CMBOR, Barclays and Deloitte
© EBRD 2005, all rights reserved
20
““CE10” CE10” -- Some DetailsSome Details
Debt Arrangers by Number Balanced sources of debt
Local banks most developed in PolandSeller note
15%
Internationalbanks
47%Local banks
38%
3 have been sold / IPO’ed (at 2x – 5x money)
4 have been refinanced
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21
Looking ForwardLooking Forward
More public market exits
Increased refinancings
Continued appetite from trade buyers, including TIM
Manufacturing and consumer-based deal flow
Rapid development of SE Europe PE market
Interest from pan-European players; some secondaries
© EBRD 2005, all rights reserved
Copyright 2005 EBRD. All Rights ReservedCopyright 2005 EBRD. All Rights Reserved
This material is for the recipient’s private information. No part of this document may be reproduced or transmitted in any form or by any means, including photocopying and recording, without the written permission of the Bank. Such written permission must also be obtained before any part of this publication is stored in a retrieval system of any nature. While the information contained herein was compiled by the EBRD, we do not guarantee its accuracy or completeness. We accept no liability in relation to use of this information. Copyright 2005 European Bank for Reconstruction and Development. All rights reserved.
© EBRD 2005, all rights reserved
Net Results and Future Net Results and Future OpportunitiesOpportunities
Marek KieżunPrincipal Banker, EBRD
10 October 2005
© EBRD 2005, all rights reserved
1
Table of ContentsTable of Contents
Net Results Overview
Quartile Performance Analysis
Fund Managers Landscape
Fund Raising Outlook
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Net Results OverviewNet Results Overview
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Horizon Returns Horizon Returns –– Strong 2004 Strong 2004
USD denominated returns as at December 31, 2004 One Year Three Year Five Year Ten Year
Return of EBRD Private Equity Portfolio* 48.3% 23.2% 13.8% 11.1%
18.2%
13.1%
3.3%
10.5%
Western European Venture Capital & Private Equity Index** 29.1% 23.0% 14.8%
Dow Jones Industrial Average 5.3% 4.7% 0.7%
MSCI Emerging Markets 25.9% 22.8% 4.6%
MSCI Europe 20.9% 11.0% 0.1%
* EBRD portfolio pooled end-to-end return, net of fees, expenses, donor grants and carried interest. Excludes property funds, includes liquidated partnerships.
** Western European venture capital and private equity funds, including Israeli funds and fully liquidated partnerships, formed between 1986 and 2004. Pooled end-to-end return, net of fees, expenses and carried interest
2
Source: Cambridge Associates, EBRD
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3
Net Pooled IRR Since InceptionNet Pooled IRR Since Inception
All Funds by RegionEUR USD
CEE/SEE 4.9% 7.7%
Russia/CIS 5.5% 9.9%
9.0%6.5%IQ
13.5%10.0%Survivor
8.6%5.2%All
USDEUR
Survivor funds and Russia/CIS show better returns
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Quartile Performance AnalysisQuartile Performance Analysis
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4
““Quartile” ApproachQuartile” Approach
First time attempt as sample nears critical mass
72 funds included in the sample*
Funds ranked within Vintage Groups
Ranking by Net IRR in funds’ original currency**
*Vintages from 2001 to 2004 were excluded; EBRD Sponsored Funds’ results are net of grants and subsidies; See additional data section for results excluding EBRD Sponsored Funds** See additional data section for USD results for USD denominated funds, EUR denominated funds sample is too small for meaningful analysis
© EBRD 2005, all rights reserved
5
Quartile Performance SummaryQuartile Performance Summary
Top quartile returns are roughly twice as high as for all funds
Vintage Group Top Quartile Cut Off IRR
Top Quartile Median IRR
Top Quartile Weighted
Average IRR
1992-1995 5.4% 11.1% 16.6%
1996-1998 10.5% 12. 9% 16.4%
1999-2001 0.4% 22.2% 18.1%
All funds, including EBRD Sponsored Funds, net of fees, expenses, donor grants, and carried interestSample of 72 funds; returns since inception in funds’ original currency
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6
Vintage Groups Vintage Groups –– Realisation StageRealisation StageYounger Vintage Groups’ returns will change as realisations continue
* TVPI and DPI of all funds in the portfolio calculated in USD
0.000.200.400.600.801.001.201.401.601.802.00
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Net
TVP
I/DPI
*
TVPIDPI
GROUP I GROUP II GROUP III
EXCLUDED
2.20
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7
Comparing Quartiles Comparing Quartiles -- ReturnsReturns
For mature vintages, the average top-bottom quartile cut-off spread is circa 10%
Mature Vintages
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Spre
ad o
f Ret
urns
0%
5%
10%
15%
20%
25%
30%
35%
Stan
dard
Dev
iatio
n of
Ret
urns
Spread Btw Top and Bottom Cut off Returns
Standard Deviation of Returns within Vintage
Vintage
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8
Comparing Quartiles Comparing Quartiles –– Fund SizeFund Size
Larger funds gravitate to top quartileSp
lit b
y Fu
nd S
ize
0%10%20%30%40%50%
60%70%80%90%
100%
TopQuartile
2ndQuartile
3rdQuartile
BottomQuartile
Above USD 100.0mUSD 50.1m - 99.9mBelow USD 50.0m
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9
Comparing Quartiles Comparing Quartiles –– Investment SizeInvestment Size
Larger investments’ advantage is more pronounced in Russia
0
1
2
3
4
5
6
7
8
Top Quartile
2nd Quartile
3rd Quartile
BottomQuartile
Ave
rage
Inve
stm
ent S
ize
(USD
Mill
ion) CEE/SEE
Russia/CIS
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10
Comparing Quartiles Comparing Quartiles –– Follow on FundsFollow on Funds
Follow on funds are over-represented in the top quartile
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
The Rest Top Quartile
VirginFollow on
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11
Comparing Quartiles Comparing Quartiles –– Follow on FundsFollow on Funds
Prior and follow on returns are correlated, but the sample is small
R2 = 0.58
-20%
-10%
0%
10%
20%
30%
40%
50%
-20% -10% 0% 10% 20% 30%Prior Fund Returns
Follo
w o
n Fu
nd R
etur
ns
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Fund Manager LandscapeFund Manager Landscape
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12
Multiple Managers’ Funds by QuartileMultiple Managers’ Funds by Quartile
GPs managing multiple funds achieve better results
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Top Quartile
2nd Quartile
3rd Quartile
Bottom Quartile
Multiple ManagersSingle Managers
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13
Cumulative CommitmentsCumulative Commitmentsto Multiple Managersto Multiple Managers
Investors value proven managers
0
1000
2000
3000
4000
5000
6000
7000
8000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Cum
ulat
ive
Com
mitm
ents
(USD
Mill
ion)
*
Multiple ManagersSingle Managers
* All investors’ commitments in EBRD portfolio funds
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14
Development of Managers by RegionDevelopment of Managers by Region
Move to Multi-Managers is most pronounced in Central Europe
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Balkans CE Russia/CIS
Com
mitm
ents
(USD
Mill
ion)
* Single ManagersMultiple Managers
* All investors’ commitments in EBRD portfolio funds
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Fund Raising OutlookFund Raising Outlook
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15
Funds Raising vs. Investments Funds Raising vs. Investments -- CESECESE
Sharp increase in funds raised in 2004
0
100
200
300
400
500
600
700
800
900
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
USD
Mill
ion
CESE Commitments Raised by Year*CESE Annual Investments
* All investors’ funds raised and invested in EBRD portfolio funds
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16
Fund Raising vs. Investments Fund Raising vs. Investments ––Russia/CISRussia/CIS
Record amounts raised should accelerate the investment pace
0
100
200
300
400
500
600
700
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
USD
Mill
ion
Russia CIS Commitments Raised by Year*Russia CIS Annual Investments
* All investors’ funds raised and invested in EBRD portfolio funds
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17
Expiring Commitments of SurvivorsExpiring Commitments of Survivors
Existing managers come off a fund raising peak –a window for new entrants?
0
200
400
600
800
1,000
1,200
2004 2005 2006 2007 2008 2009 2010Investment Period End
Com
mitm
ents
(USD
Mill
ion)
*
* Expiring commitments of all investors to Survivor Funds in the EBRD portfolio
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18
Fund Raising in 2005 Fund Raising in 2005 -- PreviewPreview
EBRD’s commitments in 2005 to date are in excess of USD 150 million
EBRD has committed to 4 funds in 2005and more than 10 funds are in a preparatory stage
Overall, approximately 25% of commitments in 2005 are expected to be in Russia/CIS and the balance in the CESE region, with a strong emphasis on the Balkans
© EBRD 2005, all rights reserved
Copyright 2005 EBRD. All Rights ReservedCopyright 2005 EBRD. All Rights Reserved
This material is for the recipient’s private information. No part of this document may be reproduced or transmitted in any form or by any means, including photocopying and recording, without the written permission of the Bank. Such written permission must also be obtained before any part of this publication is stored in a retrieval system of any nature. While the information contained herein was compiled by the EBRD, we do not guarantee its accuracy or completeness. We accept no liability in relation to use of this information. Copyright 2005 European Bank for Reconstruction and Development. All rights reserved.
© EBRD 2005, all rights reserved
Roundtable DiscussionRoundtable Discussion
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1
2005 Declaration2005 Declaration
CE PE Market has finally emerged.
Will the rest follow?
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2
Discussion TopicsDiscussion Topics
• Perceived risk vs. return premium puzzle: Will this continue?
• Will Central European Private Equity (CEPE) maintain its identity or will it be a sub-market of larger Europe?
• What are the benchmarks?
• What should Central European managers learn from other European sub-markets?
• What about Russia/CIS?
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3
Europeanisation of InvestorsEuropeanisation of Investors
European investors have surpassed USA investors in CESE/CIS funds
0
100
200
300
400
500
600
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
USD
Mill
ion
Europe*USAOther
* excludes EBRD
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4
Investor InstitutionalisationInvestor Institutionalisation
Pension Funds’ share grew from 11% to 34%
6%15%
17%
8% 7%
15%9%
11%34%
42%27%
8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1992 - 2003 2004
IFI and Govt*Pension FundsFunds of FundsCorporateBanks & InsuranceOther
*including EBRD
USD 4.9 bn USD 1.4 bn
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5
Investor Types in 2004Investor Types in 2004
Pension Funds now dominate CE: Where next?
050
100150200250300350400
IFI & G
ovt
Banks
Corporat
eFunds o
f Funds
Pensio
n FundsInsu
rance
Co.
Private
OtherU
SD M
illio
n
CE Russia/CIS
*excluding EBRD & IFIs
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6
Performance by Investor TypePerformance by Investor Type
0%10%20%30%40%50%
60%70%80%90%
100%
Funds ofFunds
IFI andGovt*
Corporate Banks &Insurance
Other PensionFunds
Top Quartile Funds 2nd Quartile Funds3rd Quartile Funds Bottom Quartile Funds
*including EBRD
© EBRD 2005, all rights reserved
Copyright 2005 EBRD. All Rights ReservedCopyright 2005 EBRD. All Rights Reserved
This material is for the recipient’s private information. No part of this document may be reproduced or transmitted in any form or by any means, including photocopying and recording, without the written permission of the Bank. Such written permission must also be obtained before any part of this publication is stored in a retrieval system of any nature. While the information contained herein was compiled by the EBRD, we do not guarantee its accuracy or completeness. We accept no liability in relation to use of this information. Copyright 2005 European Bank for Reconstruction and Development. All rights reserved.
© EBRD 2005, all rights reserved
AdditionalAdditional DataData10 October 2005
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General InformationGeneral Information
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1
What is the EBRD?What is the EBRD?
International financial institution, promotes transition to market economies in 27 countries from central Europe to central Asia
Owned by 60 countries and two inter-governmental institutions
Capital base of €20 billionCumulative commitments
€26.9 billionUnaudited June 2005
0
4
8
12
16
20
24
28
'98 '99 '00 '01 '02 '03 '04 '05
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2
EBRD Commitments to Funds Over TimeEBRD Commitments to Funds Over Time
-
50
100
150
200
250
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 3Q05
Private Equity Funds EBRD Sponsored Funds
Strong rebound in commitments in 2004-5
* Data to September 2005
*
USD
Mill
ion
0
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3
DefinitionsDefinitions
EBRD Sponsored Funds – funds established at EBRD's initiative in countries with a difficult investment climate. Supported with donor grants. EBRD investment typically 90% of fund capital
Institutional Quality Funds (IQs) – identified based on criteria established by Cambridge Associates. These, include quality of LPs in the fund, proportion of public funding, fund size
Survivor Funds – funds managed by managers who have or are expected to raise a follow-on fund
Multiple Managers – managers who manage more than one fund
Gross – returns of an investment to a fund (i.e. before fees, carry)
Net – returns to an investor in a fund (i.e. after fees, carry)
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4
Classification of EBRD RegionsClassification of EBRD Regions
CE Funds – funds operating in or investments made in the following countries: Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic and Slovenia
SE Funds – funds operating in or investments made in the following countries: Albania, Bosnia & Herzegovina, Bulgaria, Croatia, Kosovo, Macedonia, Romania, Serbia & Montenegro
CESE Funds – funds operating across the entire region excepting
the countries of Russia & CIS
Russia & CIS Funds – funds operating in or investments made in the following countries: Azerbaijan, Georgia, Kazakhstan, Moldova, Russia, Turkmenistan, and Ukraine
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NetNet ResultsResults
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5
Horizon Net Returns Horizon Net Returns –– by Currencyby Currency
CCY 1 YEAR 3 YEAR 5 YEAR
23.2% 13.9%
7.4%7.2%
48.3%
38.4%
10 YEAR
IRR USD 11.1%
IRR EUR 13.9%
ALL FUNDS
CCY 1 YEAR 3 YEAR 5 YEAR
20.4% 12.4%
7.3%4.9%
36.7%
27.0%
10 YEAR
IRR USD 11.1%
IRR EUR 13.9%
PRIVATE FUNDS ONLY*
*excluding EBRD Sponsored Funds
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6
Net Pooled IRR Since InceptionNet Pooled IRR Since Inception
USD/EUR exchange rate fluctuation bears a big impact on overall results
Currency Impact on Net Returns
USD EUR
USD Denominated Funds 8.2% 5.0%*
EUR Denominated Funds 10.7%* 5.8%
* these returns reflect currency impact
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7
Net TVPI by Vintage & ClassificationNet TVPI by Vintage & Classification
Vintage YearEBRD
Commitment All Funds Institutional Quality Survivor1992 $60m 1.82x 2.04x 2.04x1993 $58m 1.29x 1.35x 1.72x1994 $193m 1.10x 0.93x 1.16x1995 $240m 1.04x 0.89x 0.78x1996 $177m 1.11x 1.19x 1.33x1997 $142m 1.06x 1.26x 1.53x1998 $209m 1.07x 1.12x 1.12x1999 $187m 0.87x 0.83x 0.87x2000 $133m 1.18x 1.18x 1.18x2001 $36m 0.89x 0.86x 0.94x2002 $88m 0.63x 0.97x 0.95x2003 $41m 0.73x 0.73x 0.73x2004 $216m 0.78x 0.78x 0.78x
Data at the end of 2004, USD
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8
Quartile Summary Quartile Summary -- Private FundsPrivate Funds
Vintage Group Top Quartile Cut Off IRR
Top Quartile Median IRR
Top Quartile Weighted
Average IRR
1992-1995 6.1% 15.8% 17.2%
1996-1998 11.1% 12.9% 16.9%
1999-2001 1.5% 22.2% 18.1%
Excludes EBRD Sponsored FundsNet IRR in Fund’s Currency Sample of 55 funds
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9
Quartile Summary Quartile Summary –– USD Funds OnlyUSD Funds Only
Vintage Group Top Quartile Cut Off IRR
Top Quartile Median IRR
Top Quartile Weighted
Average IRR
1992-1995 6.8% 15.8% 17.2%
1996-1998 11.1% 12.9% 12.8%
1999-2001 22.2% 39.1% 34.0%
USD Denominated Funds OnlyExcludes EBRD Sponsored Funds and all EUR denominated fundsNet IRR IN USD Sample of 40 funds
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10
Quartile Performance by RegionQuartile Performance by Region
NET IRR Top Quartile Cut-Off
Top Quartile Cut-Off
Vintage Group CE/SE RUSSIA/CIS
1992-1995 7.1% 10.8%
1996-1998 11.7% 10.3%
1999-2001 NA NA
All funds in given vintagesNet IRR in Fund’s Currency 1999-2001 sample too small to differentiate by region
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Gross ResultsGross Results
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11
Gross Vintage AnalysisGross Vintage Analysis
• 1992-98: 3 of 5 years show good performance• 1999 onwards is driving medium term PE performance
0
100
200
300
400
500
600
1992-94 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
USD
Mill
ion
All Investments at CostExits at CostExits at Value
Note: Includes write offs
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12
Fully Realised Investments by Fully Realised Investments by Country, 1992Country, 1992--20042004
050
100150200
250300350400
450500550600650
Baltics Czech &SlovakRep.
Hungary Poland Romania Russia C. Asia Other
USD
Mill
ion
Investment Profitability
Investment Cost
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13
Fully Realised Investments by Sector, Fully Realised Investments by Sector, 19921992--20042004
-50
50
150
250
350
450
550
650
Agri. & Fores
tryConstr
uction
Consumer
Manufac
turing
Pharma & M
edica
lPrim
ary &
Energy
Service
s
TIMWholes
ale &
Reta
il
USD
Mill
ion
Investment Profitability
Investment Cost
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Investor ProfileInvestor Profile
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14
Investors by Type, 1992Investors by Type, 1992--20042004
Majority of investment from public sources, pension funds, and fund-of-funds
Funds of Funds14%
Banks9%
Corporate8%
Pension Funds16%
Private6%
EBRD29%
IFI and Govt11%
Insurance Co.6%
Other1%
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15
Investor Origin by Type, 1992Investor Origin by Type, 1992--20042004
Pension funds, fund-of-funds and European banks have dominated investment environment
0
100
200
300
400
500
600
GovtAgencies
Banks Corporate Funds ofFunds
PensionFunds
InsuranceCo.
Private Other
USD
Mill
ion
Europe USA Other
* excludes EBRD and IFIs
© EBRD 2005, all rights reserved
16
Investor Type by Investment Region, Investor Type by Investment Region, 19921992--20042004
Private investors prefer CIS; others flow to CE
0
100
200
300
400
500
600
700
800
900
GovtAgencies
Banks Corporate Funds ofFunds
PensionFunds
InsuranceCo.
Private Other
USD
Mill
ion
Balkans CE Regional Russia/CIS
* excludes EBRD and IFIs
© EBRD 2005, all rights reserved
17
EuropeanisationEuropeanisation of Investorsof Investors
European investors have surpassed USA investors in CESE/CIS funds
0
100
200
300
400
500
600
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
USD
Mill
ion
Europe*USAOther
* excludes EBRD
© EBRD 2005, all rights reserved
18
Investor InstitutionalisationInvestor Institutionalisation
Pension Funds’ share grew from 11% to 34%
6%15%
17%
8% 7%
15%9%
11%34%
42%27%
8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1992 - 2003 2004
IFI and Govt*Pension FundsFunds of FundsCorporateBanks & InsuranceOther
*including EBRD
USD 4.9 bn USD 1.4 bn
© EBRD 2005, all rights reserved
19
Investor Types in 2004Investor Types in 2004
Pension Funds now dominate CE: Where next?
050
100150200250300350400
IFI & G
ovt
Banks
Corporat
eFunds o
f Funds
Pensio
n FundsInsu
rance
Co.
Private
OtherU
SD M
illio
n
CE Russia/CIS
*excluding EBRD & IFIs
© EBRD 2005, all rights reserved
20
Performance by Investor TypePerformance by Investor Type
0%10%20%30%40%50%
60%70%80%90%
100%
Funds ofFunds
IFI andGovt*
Corporate Banks &Insurance
Other PensionFunds
Top Quartile Funds 2nd Quartile Funds3rd Quartile Funds Bottom Quartile Funds
*excluding EBRD and IFIs
© EBRD 2005, all rights reserved
Copyright 2005 EBRD. All Rights ReservedCopyright 2005 EBRD. All Rights Reserved
This material is for the recipient’s private information. No part of this document may be reproduced or transmitted in any form or by any means, including photocopying and recording, without the written permission of the Bank. Such written permission must also be obtained before any part of this publication is stored in a retrieval system of any nature. While the information contained herein was compiled by the EBRD, we do not guarantee its accuracy or completeness. We accept no liability in relation to use of this information. Copyright 2005 European Bank for Reconstruction and Development. All rights reserved.