IFC: Turkey can benefit from Russia situation

At PEI’s Turkey Forum, both GPs and LPs argue that despite the macro challenges, it's still a good time to invest in the country

Turkey may not be the most obvious investment destination for private equity investors, but it still has some very attractive growth opportunities that should not be ignored.

That was the overall feeling expressed by speakers and delegates at Private Equity International’s sixth Turkey Forum in Istanbul this week. Despite macro-economic challenges intensifying in the last year – from domestic political upheaval, to currency volatility, to the broader political unrest in neighbouring countries – there are still good returns to be made, GPs argued.

“Last year the economy grew less than three percent, but our portfolio grew more than 30 percent, in dollar terms,” Kerem Onursal, a director and investment committee member at Turkven Private Equity, told delegates. “We don’t look at how the economy is doing; we just try to grow our portfolio. We have invested over $1 billion in three deals including co-investments over the last twelve months. So despite all the difficulties, we continued to invest.”

“Investments by, for example, Turkven and Mediterra show that even in very depressed times, there are [good companies to invest in], and [that] these times are also creating opportunities,” Jean-Philippe Burcklen, deputy director of equity fund investments at the European Investment Fund, added. “In this industry we always look at the country in which we invest, but we are not buying the country in its entirety. And whatever the cycle, [Turkey] has companies that are in a very good shape and which are very attractive.”

Turkey can also benefit from the current volatility in Russia and Ukraine, according to Baris Gen, senior investment officer at the International Finance Corporation. LPs with an emerging market allocation for Central and Eastern Europe are much more likely to put their money in Turkey than in Russia these days, he argued. “Russia is under sanctions so it makes it difficult for a lot of European or US investors to invest in Russia or the Ukraine. The market in Russia was more advanced and robust than Turkey, and the LP interest as well. Because of what is happening right now, [Russian appetite] will probably be subdued for the next two years – and Turkish GPs can benefit from that.”

Moreover, the Turkish buyout market is very under-penetrated, with relatively little competition, he said. “The market isn’t too crowded, [as you see] in other [emerging] markets like China and India. So the GPs that can raise money right now will still not [operate] in a competitive environment. And LPs can benefit from that as well.”

His words were echoed by Wilfried Nau, director at DEG, a German development finance institution. “0.1 percent of Turkish GDP is private equity money, whereas in the BRIC countries it is three times as much – 0.4 percent of GPD – and in the US it is 10 times as much. There’s a lot of room for the private equity industry to grow. Despite some fluctuations in the perception of a country, it’s a good time to be here.”