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Private-equity firms are leading the new wave of investment in Eastern Europe and Russia.
LONDON - Plummeting stock prices in Eastern European should have made the region full of rich pickings for Western investors, but hedge funds and private equity firms have been sitting on the side lines for the last few months, fearful that things would continue to deteriorate. Now the tide is finally changing, and the some of the first investors dipping their toes back in are from the private-equity sphere.
Italian insurer Assicurazioni Generali has just put 300 million euros ($419.8 million) into a joint private-equity fund to invest in Central and Eastern Europe. It is launching the 615.0 million euro ($874.7 million) fund with PPF Group of the Czech Republic, which has already invested some 400.0 million euros ($568.9 million) into the region, focusing on mid-cap companies, a PPF spokesman said.
They are not the exception. Private-equity interest in the region is mounting, says Peter Montalto, an emerging market analyst at Nomura in London. Governments like Hungary have been seeking outside investment by offering tax incentives to foreign companies that invest in labor-intensive businesses in low-growth regions. It's part of a wider attempt to get their economies back on track. "They have been cutting back on government spending, but need investment growth in the longer term and have the aim of increasing growth around 2.0% points above the European average," Montalto said. He added that clients were now starting to take selective positions in Eastern Europe, especially in the telecom and banking sectors.
Though far more cautious about the region, hedge funds too have been returning to Eastern and Central Europe, as appetite for risk increases, says Thomas Farthofer, fund manager of Griffin Capital's Eastern European fund.
Russia and Turkey have been amongst the most popular in the past few months with the market recovering strongly, driven in Russia's case by a recovery in commodity prices, and in the case of Turkey, interest rates and expectations of aid from the International Monetary Fund. "With investors willing to take risks again, high beta markets are where the market goes back in first," he said.
Bets on Eastern Europe already seem to be paying off for some funds. In April, the Hedge Fund Research Eastern European Index gained 11.1%, making it the best performer within emerging markets, with overall emerging markets gaining 7.8%. The global index for funds gained just 3.7% according to data released last week.