European emerging market specialist, Charlemagne Capital is marketing its second fund, South East Europe Access Fund with a target of €150 million. The fund has been on the drawing board for the past eight months and is close to securing a cornerstone investor.
Nicholas Edwards, marketing and sales director Charlemagne Capital South East Europe Access Fund says the fund is in discussions with three potential sponsors and is looking for between €25 million to €50 million before it announces a first close, which Edwards hopes will happen by year-end. Edwards anticipates fund raising to take between six and nine months once the fund has its cornerstone investor in place. “We are ambitious, but we are also realistic,” he says.
The obstacles to fund raising that the group is encountering, says Edwards, is that the group is still relatively new to private equity and simply doesn’t have the track record institutional investors are looking for. And in the current climate, investors are looking for a good track record of exits and investments. The group has not yet made any exits from its €100 million first fund, which is two years old.
However Edwards adds: “One of the things that is essential in this region is that you have to have access to deal flow in region. We actually have private equity teams on the ground in Bulgaria and Croatia.”
The firm has a team of nine dedicated private equity professionals managing its two funds. Edwards believes the best returns will come from those emerging European countries seeking EU accession. He adds that some of the most compelling investment opportunities can be found in the South East European countries, primarily due to a lack of competitive capital. To date, strategic and private equity investors have focused primarily on Poland, Czech Republic and Hungary, driving valuations higher in these markets. Charlemagne believes similar and often more exciting opportunities can be found in Slovenia, Croatia, Bulgaria and Romania and so has focused its local infrastructure on maximising its presence in these markets.
The group does intend to move into the global emerging markets, but not until it is completely ready in terms of fund manager expertise and research capability. Edwards says: “We are actively exploring this arena and interviewing potential new employees to fulfil this role.” He adds that the group may be in a position to offer a global emerging market product as early as the first quarter of 2003, but does not want to commit at this stage.