New Europe Insurance Ventures (NEIV), the first venture fund for the insurance industry in Central and Eastern Europe, held a final closing in March on $34.3 million (ecu 31.2 million). This total, though it fell considerably short of the $75 million maximum set for the fund, nevertheless represents a substantial amount of investment capital in the context of the target region’s young and rapidly growing insurance sector.
Under a co-investment agreement, the European Bank for Reconstruction and Development (EBRD) will invest a further $11.43 million, or 33%, of the third-party funds raised, alongside NEIV, taking the total available for investment to $45.73 million (ecu 41.65 million).
The fund is managed by Edinburgh-based Hodgson Martin, an experienced investor in the insurance sector internationally.
Since NEIV’s first closing on $15 million a year ago (EVCJ April/May 1997, page 12), seven new investors signed up for commitments of $12.5 million. They were: the German reinsurance group Cologne Re; DEG, Germany’s consultancy agency for promoting private enterprise in developing markets worldwide; FMO, the Dutch international development finance institution; the Goergen Foundation, a US charitable foundation; uniVersa Beteiligungs-AG, a German health insurer; Austria’s largest insurance group Wiener Stadtische; and XL Investors, the investment arm of the EXEL insurance group. They joined NEIV’s cornerstone investors, Bankgesellschaft Berlin, Risk Capital Reinsurance and INA. Bankgesellschaft Berlin and Tucker Anthony Incorporated acted as placement agents.
Hodgson Martin managing director Allan Hodgson said the relative novelty of sector-specific funds for Central and Eastern Europe was probably a factor which deterred some European institutions from investing in the fund. “There are very few specialist funds in Western or Eastern Europe in comparison with the US, and I think there is still quite a bit of a learning curve for investors over here”.
The fund has made one investment to date, in Polish Reinsurance, Poland’s only domestic reinsurance company, which was set up in 1996. Together with the EBRD, NEIV last summer invested some $1.7 million for a 4.75% holding.
Following the final closing, Hodgson Martin, which reports “a growing pipeline of potential deals”, will step up the pace of investment, with further deals due to close within the next few weeks. Hodgson Martin assistant director David Walker, a member of NEIV’s management team, said the fund expects to make most of its investments during the next two years, well within its official investment period.
NEIV, which will take minority stakes only, is focusing primarily on the insurance markets in Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, the Slovak Republic and Slovenia. However, opportunities in Russia, Romania and Bulgaria are also under consideration.
Hodgson Martin managing director Allan Hodgson and director Yvonne Savage head the NEIV management team, which includes five investment executives – two Scots, a Croatian, a Hungarian and a Norwegian.
The fund will be managed out of Edinburgh, but Hodgson Martin is in a position to access deal flow both through its knowledge of the insurance sector and via the local networks of NEIV investors with offices in the target region.