An Introduction to the EBRD
Baltic Pension Funds Sound Investment and Local Finance
Tallinn, Estonia
December 6, 2012
Noel Edison, Director
Insurance and Financial Services
European Bank for Reconstruction and Development
EBRD Promoting Open Market Economies
• Founded in 1991 and headquartered in London
• Owned by 63 countries (incl. USA, Japan, Russia, France, Germany, UK) and two inter-governmental institutions (EU & EIB)
• Promotes transition to market economies in 34 countries from central Europe to central Asia
‒ Recent additions of Egypt, Morocco, Tunisia & Jordan
• 2041 Staff in a Network of 36 Offices around our region
• EBRD has 21 years of investment experience across central Europe, Russia, CIS, Western Balkans and central Asia
• The largest single investor in Central and Eastern Europe and the Commonwealth of Independent States
• Capital of EUR 35.5 billion (EUR 8.23 billion undrawn) and total assets of EUR
47 billion
• AAA-rated International Financial Institution
EBRD Countries of Operations
4
EBRD’s 21 year record - signings
€76.9 billion invested
in over 3,489 projects
Equity
€12.7 billion
Financial Institutions
€27.1 billion invested in 1,419
projects
Debt
€64.1 billion
Cumulative Gross Signings*:
All sectors
Equity
€3.4 billion Debt
€23.7 billion
FI is a key element of the EBRD’s portfolio *Data as at end August 2012
EBRD’s 21 Year Record - Signings
0
10
20
30
40
50
60
70
80
EU
R B
illio
n
Insurance and Financial Services
– Portfolio and Products
Products
Equity and debt financing for the
following non-bank financial activities:
• Insurance
• Pension & Asset Management
• Leasing
• Consumer finance
• Other:
- Stock exchanges
- Brokers
- Deposit insurance
- Non-performing loans
• Structured finance (ABS, DPR,
RMBS, Covered Bonds, SWAPs)
Current Portfolio
• 68 projects @ 30 June 2012
• 17 equity and 51 debt Projects
0
200
400
600
800
1,000
1,200
1,400
1,600
EU
R M
illio
n
Insurance Pension & Asset Management
Leasing Consumer finance & other
Structured finance
Insurance and Financial Services
Portfolio: €1.3 billion as at June 2012
Insurance and Financial Services
– Deal Criteria
Debt Equity
• EUR 1 – 200 Million
• Short to medium-term
• Subordinated or senior
debt
• Reputable local or
strategic partners
• Finance mature financial
companies to near-
greenfield
• Local or foreign currency
Subject to availability
Debt Equity
• EUR 1 – 200 Million
• Medium to long-term
• Reputable local or
strategic partners
• Invest in mature
companies to near-
greenfield
• Different exit mechanisms
are available (IPO, sale to
strategic or financial
investor)
Insurance and Financial Services
– Technical Cooperation
• Technical Cooperation (TC) intends to strengthen institutions by transferring
relevant knowledge and industry best practise
• TC can be funded by donors to complement the EBRD investment where a
need is identified by the management or shareholders
• The EBRD can assist with sourcing, hiring and contracting consultants.
Assignments are tailored for each client
Possible areas for TC are:
• Institutional Development Programmes for individual financial companies
– Underwriting, claims handling and risk management knowledge transfer
for insurers
– Advice on Data Protection laws and suitable systems for compliance
– Other technical advice as needed by the client’s industry or circumstance
Example:
• EPF Investment - provided TC for compliance with Data Protection Laws.
LHV AM: The Creation of a Local Performer
Countries Estonia
EBRD
Stake 34.8%
Sector Asset Management
Product Equity
Amount EUR 3,300,000
TRANSACTION SUMMARY
HIGHLIGHTS
Source: Finantsinspektsioon Estonia
MANDATORY PENSIONS UNDER MANAGEMENT
March 2002
• LHV AM is among the top performers in asset management (market share 17%)
• Estonia ratified a new pension legislation in 2001 containing three pillars (PAYG, mandatory private pension
and voluntary private pension)
• LHV AM was the only local company to apply for a mandatory pension fund license
• EBRD’s involvement bolstered LHV AM’s reputation allowing it to compete for customers with more
recognised but non-specialised banks
• Exited in 2009
0
200
400
600
800
1000
1200
2006 2007 2008 2009 2010 2011
EU
R M
illio
n
Renaissance Life Insurance: Promising
Greenfield Venture
Countries Russia and Ukraine
EBRD
Stake 30%
Sector Life Insurance and
Pensions
Product Equity
Amount USD 24,000,000
TRANSACTION SUMMARY
HIGHLIGHTS
Source: Official market statistics
• Renaissance Life Insurance (RLI) is a venture set up in 2005 in Russia and in 2006 in Ukraine
• RLI has grown to be among the top-10 retail life insurers in Russia and among the top-5 life insurers in Ukraine
• It is one of the few companies in Russia to sell both life insurance and pensions through the same distribution
network
• Russia and Ukraine still offer huge growth potential with insurance penetration levels far below CEE average
• EBRD’s brand name and reliable support contributed significantly to RLI becoming one of the leading life
insurers in Russia and Ukraine
RUSSIAN AND UKRAINIAN LIFE INSURERS IN 2011
Renaissance Life Insurance
August 2004/April 2006
August 2004/April 2006
29%
22%
14%
7%
6%
6%
6%
5%
3%
3%
RGS
VSK & RESO
Ingosstrah
Soglasie
MSK
Alfastrah
Rosno
RIG
Uralsib
Yugoria
26%
23%
18%
7%
5%
5%
4%
4%
4%
4%
ALICO AIG
GRAWE
TAS
RIG
KD Life
PZU
Blakitniy Polis
Generali Garant
UNIQA
Fortis
PRVA Group: Developing an Efficient
Pension Management in SEE
Countries Slovenia, Serbia,
Kosovo and Macedonia
EBRD
Stake 20%
Sector Asset Management
Product Equity
Amount EUR 5,800,000
TRANSACTION SUMMARY
HIGHLIGHTS
Source: PRVA Group
ASSETS UNDER MANAGEMENT 2007 – 3Q 2011
March 2007
• PRVA Group is a leading pension fund management company in SEE
• EBRD acquired 20% of the Company in 2007 to actively support the development of the pension reform in the
region
• PRVA Group has been expanding and today has successful operations in four countries in SEE
• With the state still playing a significant role in most of the countries, the pension sector offers much future
growth potential
• EBRD’s investment supported PRVA Group to become a leading SEE asset management company in less
than 3 years
143
193
257
337
380
0
50
100
150
200
250
300
350
400
2007 2008 2009 2010 3Q2011
EU
R M
illio
n
European Pension Fund: Supporting the
Growth of the Private Russian Market
Countries Russia
EBRD
Stake 27%
Sector Asset Management
Product Equity
Amount USD
TRANSACTION SUMMARY
HIGHLIGHTS
Source: RBC, Kommersant
MARKET SHARE OF PRIVATE PENSION FUNDS IN OPS MARKET
December 2011
85% 79%
15%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011PFR NPF
• European Pension Fund (EPF) is a start-up pension and asset management company which commenced
operations in late 2010, specialising in managing compulsory pension savings
• To actively promote the emergence of a private pension fund industry in Russia, EBRD became a shareholder
of EPF in February 2012 – EBRD’s first direct investment in the Russian pension sector
• While the state-owned Pension Fund of Russia (PFR) dominates, the private sector has been growing strongly,
increasing its membership from 7.8m citizens at YE2010 to 15.4m at YE2011
• In its first full year of operation, the company significantly expanded its distribution network and acquired over
50,000 new clients with assets under management of over RUB 1.7bn, while establishing strong internal risk
management systems and maintaining high level of customer service
Moscow Exchange: Developing Russian
Capital Markets
Countries Russia
EBRD
Stake 6.29%
Sector Stock Exchange
Product Equity
Currency RUB
TRANSACTION SUMMARY
HIGHLIGHTS
Source: WFE, World Federation of Exchanges
LARGEST EXCHANGES BY VALUE OF BONDS TRADED IN 2011
January 2012
• Moscow Exchange is one of the top 20 global securities exchanges in terms of trading volume, resulting from
the merger of MICEX and RTS in 2011
• The investment is a part of a long-term strategy to promote the development of local capital markets in Russia
• The project will facilitate transforming Moscow into a globally important and competitive international financial
hub
• It is the first EBRD investment in a trading exchange in one of its 29 countries of operation
• EBRD will appoint the Board of Directors nominee to contribute to the exchange’s development strategy and
further improve listing and reporting standards
• Moscow Exchange is targeting an IPO by mid 2013
Rank Stock Exchange USD bln
1 BME Exchanges 17.4
2 LSE Group 5.9
3 Johannesburg Exchange 2.8
4 NASDAQ OMX 2.6
5 Colombia Exchange 0.9
6 Korea Exchange 0.7
7 Oslo Bors 0.6
8 ISE 0.5
9 Moscow Exchange 0.3
Local Currency and Capital Markets Development
Initiative “LC2”
Background to LC2
• EBRD engaged in local markets since 1990’s
• CEE dependence on external Capital - $ & €
‒ Necessity since early 90’s
‒ Attraction of EU accession / € process in 1990’s
‒ Facilitated FDI
• 2-wave financial crisis showed vulnerability
‒ Collapse of cross border capital flows
‒ Devaluation pressures mitigated by resources and IMF…
• Vienna Initiative in 2009 and LC2 in 2010
‒ Joint initiative with the IMF and World Bank
LC2 and EBRD
• Key strategic initiative
– Key international focus - G8 G20 IMF MDBs
• Key in EBRD supporting CEE & SEMED in de-globalisation
– Provision of sustainable finance
• EBRD unique operational and policy competences
– Operational: Banking/Finance
– Policy advice: Legal, Economic
– Engagement: Private / Public sector
– Connectivity: IFI / MDB
– Capacity: Risk and Donor
Key Features of the Initiative
Holistic Approach
EBRD’s Comparative Advantages
• Macroeconomic
Policy
• Market
• Institutions
• Products
• Legal/Regulatory
Environment
Local Capital Market Development
EBRD’s approach emphasizes 3 pillars of market development
Isolated efforts in any one pillar would not produce desired results
• Proximity to the private-sector; ability to invest in institutions which play key roles in
market development
• Hands-on experiences in emerging markets
• Collaboration with other bi- and multi-lateral development agencies and
international financial institutions to complement each party’s expertise
Baltic Region is a Special Case
• Euro denominated
‒ Currency translation risk not evident
• Investors
‒ Pension funds are large but see a lack of attractive and acceptable
investment opportunities – only 6% of funds invested locally
• Issuers
‒ Little incentive to list locally
‒ Very little local issuance by corporations and government
EBRD Private Equity in the Baltics
© EBRD 2012, all rights reserved 19
Baltics within the EBRD Portfolio
• Since 1991 EBRD invested over
€1.7 billion in the Baltic countries
with a total project value of over
€5 billion
• 70 % in the private sector
• Debt : € 1.2 billion
Equity investments € 500 million
• Direct and through Baltic
focused funds and regional CEE
funds, mobilising further finance
• Current portfolio € 572 million
Regional 21%
ICA 2%
Infra 37%
FI 15%
Energy 25%
Current Portfolio
Infra 27%
ICA 25%
FI 36%
Energy 12%
Cumulative Business Volume
Baltic Direct Equity Portfolio
• 23 direct investments in the Baltics, of which 10 in financial institutions
• Fully realised multiple (including write-offs) of 3.2x made up of:
• Banks 6.2x and non-bank corporate investments 1.7x
14 14
10 29
81
138
0
EUR 20 m
EUR 40 m
EUR 60 m
EUR 80 m
EUR 100 m
EUR 120 m
EUR 140 m
EUR 160 m
EUR 180 m
EUR 200 m
Investments at Cost EUR 105m Realized Value incl WO EUR 181m
Lithuania Latvia Estonia
1.7x, 9.6% IRR
2.9x, 230.2% IRR
0.96x, -1.0 %IRR
Non-bank corporate investments by country
20 © European Bank for Reconstruction and Development 2012
Agribus, 15%
Banks, 32%
Info & Com Techno,
34%
Ins & Fin Services,
10%
Manufact & Services, 6%
Other, 3%
At Cost
Baltic Direct Equity Portfolio – All EBRD
• 2/3 of the return proceeds came from investing in banks
Agribus, 15%
Banks, 63%
Info & Com Techno,
12%
Ins & Fin Services,
7%
Manufact & Services1% Other, 2%
By Total Value
© European Bank for Reconstruction and Development 2012 21
EBRD Private Equity Funds
137 funds
92 fund managers
EUR 3.0 billion in
commitments to funds with
capital of EUR 15.0 billion
Approximately 1,200
underlying investments, up
to 70% exited (including
WO):
Russia / CIS 2.4x
CEE (excl Baltics) 1.8x
Note: EBRD tracked portfolio only to June
2011, excludes real estate funds
Note: The number of underlying investments
exclude regional investments and investments
in Greece
*Excludes donor funds ** Russia, CIS and CSE
EBRD’s portfolio of funds: 20 years of investing in the asset class
General portfolio Baltic focused
16 funds actively invested (7 Baltic specific funds) 13 fund managers
(3 Baltic specific)
EUR 313 million in commitments to these 16 funds with capital of EUR 1.7 billion
Approximately 100 underlying investments for ~EUR 430 million (cost), up to ~70% exited (including WO):
Baltics 1.6x
22 © European Bank for Reconstruction and Development 2012
Agri & Forestry, 0%
Construct, 1% Consumer, 7%
Manufact, 5%
Pharma & Medical, 2%
Primary & Energy, 1%
Services, 22%
TIM, 55%
Wholesale & Retail, 7%
By Investment Cost
Agri & Forestry, 1%
Construction, 3% Consumer, 8%
Manufact, 6%
Pharma & Medical, 2%
Primary & Energy, 1%
Services, 27%
TIM, 47%
Wholesale & Retail, 5%
By Total Value
• Services shows the most active investment activity since 2008
• TIM still dominates the unrealised part of the portfolio
EBRD Equity Funds Investing in the Baltics
Sector Allocation
23 © European Bank for Reconstruction and Development 2012
EUR 55 m
EUR 101 m EUR 14 m
EUR 18 m EUR 62 m
EUR 86 m
EUR m
EUR 50 m
EUR 100 m
EUR 150 m
EUR 200 m
EUR 250 m
Investments at Cost EUR 131m Total Value EUR 206m
LithuaniaLatviaEstonia
1.4x, 8.6% IRR
1.3x, 12.3% IRR
1.8x, 16.9% IRR
1.6x
Fully realised, including write -offs
EBRD Equity Funds Investing in the Baltics
• EUR 429 million invested in @100 companies, 70% exited
• Exited investments including write-offs 1.6x
• Exited investments excluding write-offs 1.9x
24 © European Bank for Reconstruction and Development 2012
Equity Funds Investor base – whole EBRD region
13%
18%
23%
9%
9%
29% 53%
64%
15%
15%17%
6%
15%
1% 3%
1%
2%
8%
0%
20%
40%
60%
80%
100%
1992-2008 2009 2010 - June 2011
Fund of Funds
Other
IFIs & Government
Agencies
Corporate Investor
Banks & Insurance
Pension Fund
• Impact of the crisis on the fund raising considerable - proportion of IFIs and
Governments have increased significantly
© European Bank for Reconstruction and Development 2012 25
Company Performance
© EBRD 2012, all rights reserved 26
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2010 2011
Gross Multiples by Vintage
The EBRD Baltics portfolio has experienced difficulty in recent
vintages as Baltic economies have experienced contractions but
companies delivered strong returns in pre-crisis vintages
Note: Gross return multiples of investees in Lithuania, Latvia and Estonia
2011 PE Investment as a % of GDP
* Baltic Countries: include: Estonia, Latvia, Lithuania
Source: EVCA/PEREP Analytics, RVCA and EBRD Estimates
© EBRD 2012, all rights reserved 27
0.8
8%
0.6
8%
0.5
9%
0.4
8%
0.4
8%
0.4
4%
0.3
5%
0.3
3%
0.2
7%
0.2
7%
0.2
6%
0.2
5%
0.2
4%
0.2
2%
0.1
9%
0.1
9%
0.1
9%
0.1
5%
0.1
4%
0.1
1%
0.0
9%
0.0
6%
0.0
5%
0.0
3%
0.0
2%
0.0
1%
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
0.80%
0.90%
1.00%
Baltic Pension Funds Sound Investment and Local Finance
Tallinn, Estonia
December 6, 2012
Noel Edison, Director
Insurance and Financial Services
European Bank for Reconstruction and Development
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