Istanbul-headquartered Turkven in September purchased 100% of Domino’s Turkish operations, which it plans to expand substantially. That deal, plus several more expected to complete in coming months, will mean the firm has invested nearly $4 billion in Turkish deals since its founding 10 years ago. Firm founder Seymur Tari tells PEI what’s next for the firm and the burgeoning Turkish private equity industry
How deployed is the fund you’re currently investing?
We have €500 million of assets under management and we have invested about half of our 2007 vintage fund. We are working on three exclusive deals in consumer goods and services. We intend to be in the market in the second half of next year.
And what kind of track record will you bring with you when you go to market?
We were the first independent fund managers in Turkey when we raised our first fund. To date we have 13 investments and three exits. By the time we go to market, we will have another two. To date, our average return on exits has been a 38 percent IRR and 3.4x cost. So, our first fund at the end of the day should return over 3x its total commitments to investors.
Do you think those kind of returns are sustainable going forward, or do you think your firm benefitted from being one of the first domestic private equity groups to begin operating in Turkey?
I believe the cash multiples we will be able to sustain and continue to get multiples above 3x. But we may have to take a longer time to do that. Our returns could go down from the current 40 percent to 30 percent going forward. So the difference is that we will make 3x money not in three to four years, but in four to five years.
You have said you think it will be another few years before private equity in Turkey is a ‘must-have’ in the portfolio of an institutional investor. Why is that? What needs to happen in the next few years?
I’m assuming they would like to see more of an exit track record. I believe that we as a GP, we will be on the radar-screens of the important LPs. But Turkey at this point does not have a collective track record. Whenever we have a validated track record as a country, then big LPs will find it much easier to invest in Turkey. Also, if you took a cross-section of the market today, the number of experienced private equity investment professionals operating in Turkey is probably less than 10. And in five years, I believe that number could be as high as 50. Our team of 19 investment professionals will definitely contribute to that number.
Turkey is categorised differently by various people as to which region of the world it belongs; is that a positive or negative in terms of attracting institutional investors?
I think it is a negative, because they end up forgetting it altogether. So given our ambition as a country to be fully integrated into Europe, and given our customs union with Europe, I believe if anything we should be considered emerging Europe. Europe will continue to be important for Turkey, but oddly enough Turkish companies have also written great success stories in Russia, Eastern Europe and in the rest of MENA. Turkish companies are very successful in surrounding countries because they usually are more advanced in their products and they have better management and lower costs. So I believe it will come to a point where Turkey is the centre of a region, rather than Turkey trying to be attached to a part of a region.
Is Turkey’s lack of domestic LPs a problem?
It would be good to have serious domestic LPs. But it will only be good if they only really understand how LPs and GPs work. It would be disaster to have a local LP who tried to dictate how a GP works on an investment.