You need look no further than Baring Vostok Capital Partners to see how far alternative asset management has developed in Russia.
Calvey and Kalinin: investors are keen on private equity in Russia
In the space of the past 13 years the company has launched no fewer than four funds, each one progressively larger than its predecessor. Starting with the relatively modest $160 million First NIS Regional Fund in 1994, BVCP has gone on to raise $205 million in 2001 via the Baring Vostok Private Equity Fund, then $413 million in 2005 via Baring Vostok Private Equity Fund III and now $1.1 billion via Baring Vostok Private Equity Fund IV.
Michael Calvey, co-managing partner of BVCP alongside Alexei Kalinin, says that compared with launching the first fund, marketing the latest one was much easier. "Compared with even two years ago institutional investors are much more willing to look at Russia, as there is a growing awareness that economic power is shifting towards fast-growing, emerging market economies like those of Russia."
He adds: "We had 70% raised from existing investors and so didnt have to work too hard on the marketing to pick up new investors." A number of accounts have been with BVCP since 1994, participated in all four funds and enjoyed high returns as a result. "$1 invested in the first fund and then reinvested through the others would now be worth $20," says Kalinin.
In the past 12 years BVCP has taken stakes in nearly 50 companies, many of which have gone on to become major players including telcos Vimpelcom and Golden Telecom, TV broadcaster CTC Media, outdoor advertising company Gallery Group, and oil company Burren Energy. As with the earlier funds the investment focus will be primarily on middle-market companies in the financial services, branded consumer products, media, telecommunications and oil and gas sectors.
Calvey says: "The best opportunities often are those related to existing investments as we often know the industry already and so can move forward quickly."
Kalinin says that typically BVCP likes to take controlling stakes in companies, often through management buyouts (MBOs) or acquisitions together with other co-investors. "We make management our partners and we have established a reputation for keeping our promises." Typically BVCP looks to generate a net threefold return on its investments, with an internal rate of return in the 30% to 40% range, but in some exceptional cases such as that of CTC Media, which went public on Nasdaq last year, it made a 42-fold gain.