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


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


OverviewOverview2004 2004 –– A Record YearA Record Year

Henry PotterSenior Banker, EBRD

10 October 2005


1

ThemesThemes

Portfolio Overview

Market Estimates

2004 Results


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


Portfolio OverviewPortfolio Overview


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


4

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


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


Market EstimatesMarket Estimates


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


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


2004 Results2004 Results


8

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


9

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


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)


11

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


12

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


13

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


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.


Exits Overview Exits Overview Enter the IPOEnter the IPO

Sylvia Gansser-PottsSenior Banker, EBRD

10 October 2005


1

Table of ContentsTable of Contents

Exits in 2004

Exits over Time

Enter the IPO

– Poland

– Russia


2

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


3

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


4

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 Cost

Note: includes write-offs


Exits Over TimeExits Over Time


5

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


6

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.


7

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


8

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


Enter the IPO Enter the IPO


9

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


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


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


12

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


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


14

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


Warsaw Stock ExchangeWarsaw Stock Exchange


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


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


17

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%


18

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


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


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


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


What Will Drive Future Returns?What Will Drive Future Returns?Henry Potter

Senior Banker, EBRD

10 October 2005


1

Visions of the FutureVisions of the Future


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


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


The Unrealised PortfolioThe Unrealised Portfolio


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


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: 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


6

2004 Exits by Vintage: CE/SE 2004 Exits by Vintage: CE/SE

Crucial 1999-2001 vintages starting to show performance

Note: Includes WO




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


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


Evolving Investment ProfilesEvolving Investment Profiles


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)


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


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


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)


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


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


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


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


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


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%

http://www.cebr.com/


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


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


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


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


Net Results and Future Net Results and Future OpportunitiesOpportunities

Marek KieżunPrincipal Banker, EBRD

10 October 2005


1

Table of ContentsTable of Contents

Net Results Overview

Quartile Performance Analysis

Fund Managers Landscape

Fund Raising Outlook


Net Results OverviewNet Results Overview


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


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


Quartile Performance AnalysisQuartile Performance Analysis


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


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


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


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


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


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


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


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


Fund Manager LandscapeFund Manager Landscape


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


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


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


Fund Raising OutlookFund Raising Outlook


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


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


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


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


Roundtable DiscussionRoundtable Discussion


1

2005 Declaration2005 Declaration

CE PE Market has finally emerged.

Will the rest follow?


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?


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


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


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


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


AdditionalAdditional DataData10 October 2005


General InformationGeneral Information


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


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


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)


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


NetNet ResultsResults


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


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


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


8

Quartile Summary Quartile Summary -- Private FundsPrivate Funds




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


9

Quartile Summary Quartile Summary –– USD Funds OnlyUSD Funds Only




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


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


Gross ResultsGross Results


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


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 Cost


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 Cost


Investor ProfileInvestor Profile


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%


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


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


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


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


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


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

performance of private equity funds in central and eastern ... · usd net irr of 8.6%; tvpi of...

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