An Introduction to the EBRD · Source: RBC, Kommersant MARKET SHARE OF PRIVATE PENSION FUNDS IN OPS...

An Introduction to the EBRD

Baltic Pension Funds Sound Investment and Local Finance

Tallinn, Estonia

December 6, 2012

Noel Edison, Director

Insurance and Financial Services

European Bank for Reconstruction and Development

EBRD Promoting Open Market Economies

• Founded in 1991 and headquartered in London

• Owned by 63 countries (incl. USA, Japan, Russia, France, Germany, UK) and two inter-governmental institutions (EU & EIB)

• Promotes transition to market economies in 34 countries from central Europe to central Asia

‒ Recent additions of Egypt, Morocco, Tunisia & Jordan

• 2041 Staff in a Network of 36 Offices around our region

• EBRD has 21 years of investment experience across central Europe, Russia, CIS, Western Balkans and central Asia

• The largest single investor in Central and Eastern Europe and the Commonwealth of Independent States

• Capital of EUR 35.5 billion (EUR 8.23 billion undrawn) and total assets of EUR

47 billion

• AAA-rated International Financial Institution

EBRD Countries of Operations

4

EBRD’s 21 year record - signings

€76.9 billion invested

in over 3,489 projects

Equity

€12.7 billion

Financial Institutions

€27.1 billion invested in 1,419

projects

Debt

€64.1 billion

Cumulative Gross Signings*:

All sectors

Equity

€3.4 billion Debt

€23.7 billion

FI is a key element of the EBRD’s portfolio *Data as at end August 2012

EBRD’s 21 Year Record - Signings

0

10

20

30

40

50

60

70

80

EU

R B

illio

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– Portfolio and Products

Products

Equity and debt financing for the

following non-bank financial activities:

• Insurance

• Pension & Asset Management

• Leasing

• Consumer finance

• Other:

- Stock exchanges

- Brokers

- Deposit insurance

- Non-performing loans

• Structured finance (ABS, DPR,

RMBS, Covered Bonds, SWAPs)

Current Portfolio

• 68 projects @ 30 June 2012

• 17 equity and 51 debt Projects

0

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600

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1,000

1,200

1,400

1,600

EU

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Insurance Pension & Asset Management

Leasing Consumer finance & other

Structured finance


Portfolio: €1.3 billion as at June 2012


– Deal Criteria

Debt Equity

• EUR 1 – 200 Million

• Short to medium-term

• Subordinated or senior

debt

• Reputable local or

strategic partners

• Finance mature financial

companies to near-

greenfield

• Local or foreign currency

Subject to availability

Debt Equity

• EUR 1 – 200 Million

• Medium to long-term

• Reputable local or

strategic partners

• Invest in mature

companies to near-

greenfield

• Different exit mechanisms

are available (IPO, sale to

strategic or financial

investor)


– Technical Cooperation

• Technical Cooperation (TC) intends to strengthen institutions by transferring

relevant knowledge and industry best practise

• TC can be funded by donors to complement the EBRD investment where a

need is identified by the management or shareholders

• The EBRD can assist with sourcing, hiring and contracting consultants.

Assignments are tailored for each client

Possible areas for TC are:

• Institutional Development Programmes for individual financial companies

– Underwriting, claims handling and risk management knowledge transfer

for insurers

– Advice on Data Protection laws and suitable systems for compliance

– Other technical advice as needed by the client’s industry or circumstance

Example:

• EPF Investment - provided TC for compliance with Data Protection Laws.

LHV AM: The Creation of a Local Performer

Countries Estonia

EBRD

Stake 34.8%

Sector Asset Management

Product Equity

Amount EUR 3,300,000

TRANSACTION SUMMARY

HIGHLIGHTS

Source: Finantsinspektsioon Estonia

MANDATORY PENSIONS UNDER MANAGEMENT

March 2002

• LHV AM is among the top performers in asset management (market share 17%)

• Estonia ratified a new pension legislation in 2001 containing three pillars (PAYG, mandatory private pension

and voluntary private pension)

• LHV AM was the only local company to apply for a mandatory pension fund license

• EBRD’s involvement bolstered LHV AM’s reputation allowing it to compete for customers with more

recognised but non-specialised banks

• Exited in 2009

0

200

400

600

800

1000

1200

2006 2007 2008 2009 2010 2011

EU

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http://www.lhv.ee/index.cfm?id=80000

Renaissance Life Insurance: Promising

Greenfield Venture

Countries Russia and Ukraine

EBRD

Stake 30%

Sector Life Insurance and

Pensions

Product Equity

Amount USD 24,000,000

TRANSACTION SUMMARY

HIGHLIGHTS

Source: Official market statistics

• Renaissance Life Insurance (RLI) is a venture set up in 2005 in Russia and in 2006 in Ukraine

• RLI has grown to be among the top-10 retail life insurers in Russia and among the top-5 life insurers in Ukraine

• It is one of the few companies in Russia to sell both life insurance and pensions through the same distribution

network

• Russia and Ukraine still offer huge growth potential with insurance penetration levels far below CEE average

• EBRD’s brand name and reliable support contributed significantly to RLI becoming one of the leading life

insurers in Russia and Ukraine

RUSSIAN AND UKRAINIAN LIFE INSURERS IN 2011

Renaissance Life Insurance

August 2004/April 2006

August 2004/April 2006

29%

22%

14%

7%

6%

6%

6%

5%

3%

3%

RGS

VSK & RESO

Ingosstrah

Soglasie

MSK

Alfastrah

Rosno

RIG

Uralsib

Yugoria

26%

23%

18%

7%

5%

5%

4%

4%

4%

4%

ALICO AIG

GRAWE

TAS

RIG

KD Life

PZU

Blakitniy Polis

Generali Garant

UNIQA

Fortis

PRVA Group: Developing an Efficient

Pension Management in SEE

Countries Slovenia, Serbia,

Kosovo and Macedonia

EBRD

Stake 20%


Product Equity

Amount EUR 5,800,000

TRANSACTION SUMMARY

HIGHLIGHTS

Source: PRVA Group

ASSETS UNDER MANAGEMENT 2007 – 3Q 2011

March 2007

• PRVA Group is a leading pension fund management company in SEE

• EBRD acquired 20% of the Company in 2007 to actively support the development of the pension reform in the

region

• PRVA Group has been expanding and today has successful operations in four countries in SEE

• With the state still playing a significant role in most of the countries, the pension sector offers much future

growth potential

• EBRD’s investment supported PRVA Group to become a leading SEE asset management company in less

than 3 years

143

193

257

337

380

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350

400

2007 2008 2009 2010 3Q2011

EU

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http://www.prvagroup.eu/en

European Pension Fund: Supporting the

Growth of the Private Russian Market

Countries Russia

EBRD

Stake 27%


Product Equity

Amount USD

TRANSACTION SUMMARY

HIGHLIGHTS

Source: RBC, Kommersant

MARKET SHARE OF PRIVATE PENSION FUNDS IN OPS MARKET

December 2011

85% 79%

15%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011PFR NPF

• European Pension Fund (EPF) is a start-up pension and asset management company which commenced

operations in late 2010, specialising in managing compulsory pension savings

• To actively promote the emergence of a private pension fund industry in Russia, EBRD became a shareholder

of EPF in February 2012 – EBRD’s first direct investment in the Russian pension sector

• While the state-owned Pension Fund of Russia (PFR) dominates, the private sector has been growing strongly,

increasing its membership from 7.8m citizens at YE2010 to 15.4m at YE2011

• In its first full year of operation, the company significantly expanded its distribution network and acquired over

50,000 new clients with assets under management of over RUB 1.7bn, while establishing strong internal risk

management systems and maintaining high level of customer service

Moscow Exchange: Developing Russian

Capital Markets

Countries Russia

EBRD

Stake 6.29%

Sector Stock Exchange

Product Equity

Currency RUB

TRANSACTION SUMMARY

HIGHLIGHTS

Source: WFE, World Federation of Exchanges

LARGEST EXCHANGES BY VALUE OF BONDS TRADED IN 2011

January 2012

• Moscow Exchange is one of the top 20 global securities exchanges in terms of trading volume, resulting from

the merger of MICEX and RTS in 2011

• The investment is a part of a long-term strategy to promote the development of local capital markets in Russia

• The project will facilitate transforming Moscow into a globally important and competitive international financial

hub

• It is the first EBRD investment in a trading exchange in one of its 29 countries of operation

• EBRD will appoint the Board of Directors nominee to contribute to the exchange’s development strategy and

further improve listing and reporting standards

• Moscow Exchange is targeting an IPO by mid 2013

Rank Stock Exchange USD bln

1 BME Exchanges 17.4

2 LSE Group 5.9

3 Johannesburg Exchange 2.8

4 NASDAQ OMX 2.6

5 Colombia Exchange 0.9

6 Korea Exchange 0.7

7 Oslo Bors 0.6

8 ISE 0.5

9 Moscow Exchange 0.3

Local Currency and Capital Markets Development

Initiative “LC2”

Background to LC2

• EBRD engaged in local markets since 1990’s

• CEE dependence on external Capital - $ & €

‒ Necessity since early 90’s

‒ Attraction of EU accession / € process in 1990’s

‒ Facilitated FDI

• 2-wave financial crisis showed vulnerability

‒ Collapse of cross border capital flows

‒ Devaluation pressures mitigated by resources and IMF…

• Vienna Initiative in 2009 and LC2 in 2010

‒ Joint initiative with the IMF and World Bank

LC2 and EBRD

• Key strategic initiative

– Key international focus - G8 G20 IMF MDBs

• Key in EBRD supporting CEE & SEMED in de-globalisation

– Provision of sustainable finance

• EBRD unique operational and policy competences

– Operational: Banking/Finance

– Policy advice: Legal, Economic

– Engagement: Private / Public sector

– Connectivity: IFI / MDB

– Capacity: Risk and Donor

Key Features of the Initiative

Holistic Approach

EBRD’s Comparative Advantages

• Macroeconomic

Policy

• Market

• Institutions

• Products

• Legal/Regulatory

Environment

Local Capital Market Development

EBRD’s approach emphasizes 3 pillars of market development

Isolated efforts in any one pillar would not produce desired results

• Proximity to the private-sector; ability to invest in institutions which play key roles in

market development

• Hands-on experiences in emerging markets

• Collaboration with other bi- and multi-lateral development agencies and

international financial institutions to complement each party’s expertise

Baltic Region is a Special Case

• Euro denominated

‒ Currency translation risk not evident

• Investors

‒ Pension funds are large but see a lack of attractive and acceptable

investment opportunities – only 6% of funds invested locally

• Issuers

‒ Little incentive to list locally

‒ Very little local issuance by corporations and government

EBRD Private Equity in the Baltics

© EBRD 2012, all rights reserved 19

Baltics within the EBRD Portfolio

• Since 1991 EBRD invested over

€1.7 billion in the Baltic countries

with a total project value of over

€5 billion

• 70 % in the private sector

• Debt : € 1.2 billion

Equity investments € 500 million

• Direct and through Baltic

focused funds and regional CEE

funds, mobilising further finance

• Current portfolio € 572 million

Regional 21%

ICA 2%

Infra 37%

FI 15%

Energy 25%

Current Portfolio

Infra 27%

ICA 25%

FI 36%

Energy 12%

Cumulative Business Volume

Baltic Direct Equity Portfolio

• 23 direct investments in the Baltics, of which 10 in financial institutions

• Fully realised multiple (including write-offs) of 3.2x made up of:

• Banks 6.2x and non-bank corporate investments 1.7x

14 14

10 29

81

138

0

EUR 20 m

EUR 40 m

EUR 60 m

EUR 80 m

EUR 100 m

EUR 120 m

EUR 140 m

EUR 160 m

EUR 180 m

EUR 200 m

Investments at Cost EUR 105m Realized Value incl WO EUR 181m

Lithuania Latvia Estonia

1.7x, 9.6% IRR

2.9x, 230.2% IRR

0.96x, -1.0 %IRR

Non-bank corporate investments by country

20 © European Bank for Reconstruction and Development 2012

Agribus, 15%

Banks, 32%

Info & Com Techno,

34%

Ins & Fin Services,

10%

Manufact & Services, 6%

Other, 3%

At Cost

Baltic Direct Equity Portfolio – All EBRD

• 2/3 of the return proceeds came from investing in banks

Agribus, 15%

Banks, 63%

Info & Com Techno,

12%

Ins & Fin Services,

7%

Manufact & Services1% Other, 2%

By Total Value

© European Bank for Reconstruction and Development 2012 21

EBRD Private Equity Funds

137 funds

92 fund managers

EUR 3.0 billion in

commitments to funds with

capital of EUR 15.0 billion

Approximately 1,200

underlying investments, up

to 70% exited (including

WO):

Russia / CIS 2.4x

CEE (excl Baltics) 1.8x

Note: EBRD tracked portfolio only to June

2011, excludes real estate funds

Note: The number of underlying investments

exclude regional investments and investments

in Greece

*Excludes donor funds ** Russia, CIS and CSE

EBRD’s portfolio of funds: 20 years of investing in the asset class

General portfolio Baltic focused

16 funds actively invested (7 Baltic specific funds) 13 fund managers

(3 Baltic specific)

EUR 313 million in commitments to these 16 funds with capital of EUR 1.7 billion

Approximately 100 underlying investments for ~EUR 430 million (cost), up to ~70% exited (including WO):

Baltics 1.6x


Agri & Forestry, 0%

Construct, 1% Consumer, 7%

Manufact, 5%

Pharma & Medical, 2%

Primary & Energy, 1%

Services, 22%

TIM, 55%

Wholesale & Retail, 7%

By Investment Cost

Agri & Forestry, 1%

Construction, 3% Consumer, 8%

Manufact, 6%

Pharma & Medical, 2%

Primary & Energy, 1%

Services, 27%

TIM, 47%

Wholesale & Retail, 5%

By Total Value

• Services shows the most active investment activity since 2008

• TIM still dominates the unrealised part of the portfolio

EBRD Equity Funds Investing in the Baltics

Sector Allocation


EUR 55 m

EUR 101 m EUR 14 m

EUR 18 m EUR 62 m

EUR 86 m

EUR m

EUR 50 m

EUR 100 m

EUR 150 m

EUR 200 m

EUR 250 m

Investments at Cost EUR 131m Total Value EUR 206m

LithuaniaLatviaEstonia

1.4x, 8.6% IRR

1.3x, 12.3% IRR

1.8x, 16.9% IRR

1.6x

Fully realised, including write -offs

EBRD Equity Funds Investing in the Baltics

• EUR 429 million invested in @100 companies, 70% exited

• Exited investments including write-offs 1.6x

• Exited investments excluding write-offs 1.9x


Equity Funds Investor base – whole EBRD region

13%

18%

23%

9%

9%

29% 53%

64%

15%

15%17%

6%

15%

1% 3%

1%

2%

8%

0%

20%

40%

60%

80%

100%

1992-2008 2009 2010 - June 2011

Fund of Funds

Other

IFIs & Government

Agencies

Corporate Investor

Banks & Insurance

Pension Fund

• Impact of the crisis on the fund raising considerable - proportion of IFIs and

Governments have increased significantly

© European Bank for Reconstruction and Development 2012 25

Company Performance


0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2010 2011

Gross Multiples by Vintage

The EBRD Baltics portfolio has experienced difficulty in recent

vintages as Baltic economies have experienced contractions but

companies delivered strong returns in pre-crisis vintages

Note: Gross return multiples of investees in Lithuania, Latvia and Estonia

2011 PE Investment as a % of GDP

* Baltic Countries: include: Estonia, Latvia, Lithuania

Source: EVCA/PEREP Analytics, RVCA and EBRD Estimates


0.8

8%

0.6

8%

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9%

0.4

8%

0.4

8%

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4%

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5%

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3%

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7%

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7%

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6%

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5%

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4%

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9%

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9%

0.1

9%

0.1

5%

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4%

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5%

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3%

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2%

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1%

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

0.90%

1.00%

Baltic Pension Funds Sound Investment and Local Finance

Tallinn, Estonia

December 6, 2012

Noel Edison, Director


European Bank for Reconstruction and Development

An Introduction to the EBRD · Source: RBC, Kommersant MARKET SHARE OF PRIVATE PENSION FUNDS IN OPS...

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Transcript of An Introduction to the EBRD · Source: RBC, Kommersant MARKET SHARE OF PRIVATE PENSION FUNDS IN OPS...