PFR Ventures eyes bigger slice of PE

Poland Development Fund’s investment arm expects to double its AUM by 2025, with up to 40% invested in private equity.

The investment arm of state-backed Polskim Funduszu Rozwoju (Polish Development Fund) aims to broaden its private equity investments by 2025 by allocating as much as 40 percent of its AUM to the asset class.

That would mean more commitments to first-time managers, co-investments and secondaries, investment director Michal Gladys told Private Equity International.

If we believe we can have some strategic type of relationship with the GP, and we strongly believe they meet our criteria and goals of supporting the Polish economy, we may scale up our commitment,” Gladys said. “We are thinking about increasing the cheque size to up to €50 million and hope to do some co-investments in the future.

“Those co-investments would be fully syndicated – we’re not going to be sharing in the cost of due diligence – and need to have a significant portion of the capital injection in, for example, a Polish subsidiary.”

Michal Gladys, PFR
Gladys: we want to see new managers setting up

Gladys, who joined the fund in February 2020 following a stint as an independent adviser and nearly seven years as an investment officer with California Public Employees’ Retirement System, said backing emerging managers in Poland is an important part of the organisation’s push into private equity.

He stated: “PFR Ventures is, after all, mission-driven, with clearly outlined goals of supporting Poland’s economy and promoting PE as an asset class for the benefit of its pensioners.”

The vehicle was set up in 2020 to consolidate the state investor’s fund investments, which were previously managed by PFR’s public equities team. PFR Ventures has made eight PE fund commitments to date, including funds managed by PAI Partners, Apax Partners, HIG Capital and Austria-based Syntaxis Capital. Ticket sizes are typically between €5 million and €25 million, and buyout and growth funds are a focus. PFR has also backed its GPs’ newer vehicles, including mid-market buyouts and mezzanine.

Gladys said: “Rather than having very strict rules on where we can deploy capital, we thought we can be more flexible and look at the total experience of the manager. We look at their track record of investing in Poland. It doesn’t have to be a direct investment or a platform deal. It can be a significant add-on or expansion of the company into the Polish market.”

PFR Ventures has 3 billion złoty ($758 million; €656 million) in AUM, which it expects to double by 2025. In September, it added €110 million to its PE programme, growing its overall budget to €240 million. Along with its PE and VC programmes, it manages GreenHub, a fund of funds focused on clean technology and impact investing.

When asked about target returns for PRF’s PE portfolio, Gladys noted that lower double-digit returns are a realistic target for the “mission-driven” fund of funds. The investment team’s compensation is not based on the total return of the portfolio, nor does it have a pre-set percentage to hit, he added.

Exploring new areas

Another opportunity set is secondaries. Gladys was quick to point out that secondaries, continuation funds and even GP stakes strategies “don’t have that much coverage in Poland’s fairly young and undeveloped PE market”.

That said, PFR Ventures is having discussions on how it can participate in secondaries, which has grown significantly in the last few years and has been buoyed by GP-led transactions that have surged over the last 18 months.

“It’s very early days,” Gladys said. “We don’t know how exactly Polish pensioners would invest into alternatives. However, at PFR we are building a track record, credibility and presence in the market.

“When the time comes, we would be at the forefront and ready to invest in those new opportunities.” 

Challenges ahead

Inflation pressures and high valuations are high priorities for Gladys and PFR Ventures’ investment team over the coming year.

“We are funded in Polish złoty and most of the capital is being deployed in euro-denominated funds,” he said. “Clearly, some of the exchange rates and issues with inflation will have an impact on what we do. We started looking into private credit funds as a hedge against inflation.”

He added that a market correction may be right around the corner, which would greatly impact newer managers.

“As a result, there’s a chance that next year or the following year, there [will] be fewer emerging managers in the market. That’s a big concern because we want to continue developing our local market. We want to see new managers setting up. And we want to build good deployment programmes [in Poland].

“But if times go bad, then there are not going to be too many investment opportunities, and that is a concern.”