Talking Turkey

Industry insiders took time out from PEI's recent Turkey Forum in Istanbul to explain why - despite some hurdles - Turkish private equity merits serious LP attention.

Turkey is in many ways a poster child for emerging markets opportunities: it has a large, high-growth economy characterised by a rapidly growing middle class and companies in need of expansion capital and operational expertise. Yet its nascent private equity industry has stiff competition in terms of attracting global capital as fund managers in Asia, emerging Europe and the Middle East and North Africa contend for limited partner commitments.

In Istanbul in late September, this core issue, as well as many others, was discussed at length by global and domestic fund managers and investors who had gathered en masse for the second annual PEI Turkey Forum

PEI caught up on the sidelines with some of the market’s veteran participants, who explained why Turkish private equity is set to soar despite having some clear challenges to confront.  Here are some highlights from these discussions:

Isak Antika
Co-founder and managing partner of private equity firm Actera Group

Obviously emerging markets are very much in vogue and the big debate is around whether the excitement is for real and how Turkey fits in with all the hype around the emerging markets. I think the hype is real. Turkey has embarked on a growth trajectory the last 10 years. It’s been very stable and the growth prospects are resulting in serious opportunities. Not only that, the asset class is generally well regarded. It is well respected by regulators, also better understood by vendors and managers and entrepreneurs.  How many markets in the world can you say that about?

Mehmet Sami
Executive board member of local investment bank Ata Invest

We’re stuck in a funny region – some people call it Eastern Europe, some say Europe or Mediterranean Rim or Eurasia. So that is one hurdle to overcome. We [also] need to have much more activity to put us on the map. Unfortunately we’re not there yet – we are far behind, despite the fact that private equity in Turkey started in the mid-90s. There have only been 125 or so private equity deals since 1995 … And if you look at the size of the country, the size of the corporates and performance of these corporates, 125 in 15 years is not too many, especially if you carve out the three big buyout deals that have taken place. We also need to improve our stance in the world of private equity fundraising. Most of the funds raised are actually done with [commitments from] international LPs, there are hardly any local investors in the market and that’s another area we need to improve. But that is probably not going to [happen] for another four or five years so we have to be conservative on that front in comparing ourselves with Asia and Latin America.

Seymur Tari
Founder and managing director of private equity firm Turkven

We have been investing in Turkish private equity for the last 10 years and it’s been a pretty interesting ride. We have seen the GDP triple to quadruple in the last seven or eight years. Turkey is a huge market with 74 million consumers … it is a very high growth environment where you make good money. But you have to pay your dues in private equity before you can actually get money to invest and that takes time, probably about 10 years. We have really been on the map for the last five years since our European accession talks. And we need another five years I believe to really be a ‘must have’ item in portfolios of investors.

Memet Yacizi
Head of private equity for private equity firm Rhea Asset Management

 Turkey is a large market, an economy that has proven its resiliency. You hear the Turkey story as being a ‘gateway’ [to neighbouring regions], but now in our own portfolio we are seeing that gateway talk turn into cash. Our portfolio companies are generating revenues from our neighbours… Exits in turkey are still in the immature stage. Just like a portfolio that has different phases, if Turkey was a fund on its own, we would be in the investment period, so we are just getting to the exits. We see more exits coming up in the next three years; 2013 and beyond will be fireworks.