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Successive crises have taken their toll on the private-equity industry in emerging Europe and enthusiasm for the region has waned. Nevertheless, its combination of strong growth and opportunities for convergence with western Europe continues to attract a hard core of supporters.
From the perspective of private equity, central and eastern Europe is "at a dangerous age", says Jacek Siwicki, president of regional fund manager Enterprise Investors. "People don't know how to treat the region - we're no longer a promising teenager, but nor are we a 35-year-old with a solid CV." In human terms, he says, CEE is in its late 20s - "it may have achieved something but it's not an obvious hire".
Certainly, attitudes towards emerging Europe have changed dramatically in the past decade. Back in the mid-2000s, when GDP growth was running at 6% or more in all the main economies and the region seemed set on an inexorable path of convergence with western Europe, private-equity funds and investors flocked to CEE. In 2007, local specialist Mid Europa was able to raise a record EUR 1.5 billion for its third fund, taking the total raised for the region that year to more than EUR 4 billion, and the following year Advent International closed its fourth CEE fund at EUR 1 billion.
People don't know how to treat the region - we're
no longer a promising teenager, but nor are we a 35-year-old with a solid CV.
Jacek Siwicki,
Enterprise Investors
The convergence play, however, took a heavy knock in the financial crisis, as volatility returned to the region and a number of countries sank into deep recession. Hopes of a rapid, export-led recovery were swiftly crushed by the emergence of the eurozone crisis, and private-equity returns slumped as investments went sour and holding periods were extended. Investor enthusiasm for CEE waned to the point where, by 2013, even regional stalwart Advent was unable to drum up enough interest for a fifth dedicated fund.
Part of the problem, says Anthony Diamandakis, head of alternative assets group EMEA at Citi, is that once the excitement around big privatization programmes and European Union accession had worn off, CEE began to look fairly small by global standards, particularly from the point of view of ever-expanding international...