Private equity panorama

09 June 2014   Category: News, Asia, Global, Europe   By Paul Mackintosh

Turning thoughts for a while to a different kind of East – Central and Eastern Europe – noted economics guru Dr. Nouriel Roubini, speaking at the HVCA Private Equity, Venture Capital and Corporate Finance in CEE conference last week, had some cogent messages for private equity (PE) general partners (GPs) and limited partners (LPs) in the audience. For one thing, he does think that Central and Eastern European PE is an appealing proposition to invest in in terms of the underlying economies. “The fundamental economics and policies of this region are much stronger than they were a decade ago,” he said. “The opportunities for investment are much better.” However, he cautioned, partly due to issues in the Ukraine, “a lot of less sophisticated investors take a wait-and-see attitude” – which could be a pity in the light of the prospects for the region.

“For private equity and venture capital investors coming to the region, there is plenty of opportunity,” Mr. Roubini stated. “The deleveraging of the banking and financial system has occurred... the better economic growth of the eurozone and the stronger growth of Germany are going to lift this region.” Looking to the longer term, though, which is always a concern for private equity investors, he added that the outlook for longer-term growth potential depends on economic policy, and here the picture for the region “is still a complicated one.” Especially, “the years of strong economic growth before the GFC were driven by asset and credit bubbles that were unsustainable, so you’re not going to go back to the years of 6% growth.” Countries where the political environment is “not friendly to the private sector” are also going to struggle to produce growth, especially while “structural reforms are still needed in most of these countries in the region” to jumpstart entrepreneurship, innovation, start-ups and other things that PE and venture capital (VC) investors thrive on.

That said, with the CEE financial system gone from “an excessive credit boom to a credit crunch,” Mr. Roubini sees “the growth of the venture capital and the private equity industry in this region of the world is going to be very important in making sure that financing of new and existing businesses to create new job opportunities and investment is occurring. A lot of work needs to be done.” Private equity therefore is likely to be highly important, if not crucial, in Mr. Roubini’s view, in restoring Central and Eastern Europe to something like its full growth potential and securing the structural changes that the regional economy badly needs. One only hopes that investors will heed his words and back them up with cash.