The future’s bright..the future’s orange

The bloodless revolution that gripped the watching world and swept Viktor Yushchenko to the office of president in Ukraine may be just over 100 days old, but private equity funds in the region are already gearing up to take advantage. Colm Gilmore reports.

There aren’t many places in the world where private equity professionals would actually go on strike. But then again, there haven’t been many periods in

The whole office was on strike, absolutely.

Natalie Jaresko, CEO, Western NIS Enterprise Fund

European history to match the Orange Revolution, i.e. the tumultuous, albeit peaceful, uprising in Ukraine that followed the disputed presidential election on November 21 last year which eventually led to former opposition leader Viktor Yushchenko forming a new government.

During the rebellion, hundreds of thousands of Ukrainians flocked to Kyiv to protest against electoral fraud and corruption, and a general strike was called that affected many parts of Ukraine’s society – including the country’s fledging private equity community. Western NIS Enterprise Fund, a $150 million evergreen Ukrainian private equity vehicle, was no exception. “The whole office was on strike, absolutely,” says Natalie Jaresko, the group’s president and CEO.

What was striking about the uprising was the fact that it was predominantly led by the middle classes. “This was not poor versus rich. This revolution was led by shopkeepers demanding a European standard of living,” says Jaresko.

The prospect of gradual liberalisation – part of Yushchenko’s promise to the electorate was to achieve EU accession – coupled with a number of years of significant economic growth makes Jaresko excited about the prospects for private equity in the region.

The Western NIS Enterprise Fund is an evergreen vehicle that to date has invested $95 million in 28 companies in Ukraine and Moldova.  Jaresko believes

The amount of media coverage that the uprising generated was better than a $10 billion ad spend for Ukraine – it was fantastic PR.

Natalie Jaresko, CEO, Western NIS Enterprise Fund

that investment opportunities in a country post-revolution and pre-EU accession are enormous: “Consumer confidence is high. The currency is stable, even appreciating. Inflation is low, valuations are reasonable and there is a political will to push through change.” Crucially, the Yushchenko government is committed to eradicating the corruption that previously blighted the country’s economic base.

Jaresko’s fund focuses mainly on growing mainstream business sectors such as fast-moving consumer goods, retail, financial services and leisure/tourism. Moscow-based Delta Private Equity Partners, which recently closed a $120 million direct investment fund with a 10 percent allocation to the country, has a similar industry focus.

Ukraine’s proximity to and historic trading relationship with Russia mean that cross-border investment opportunities are likely to continue to present themselves, particularly in the energy sector.

Viktor Yushchenko, president of Ukraine

However, Ukraine today is predominantly facing west, particularly now that awareness of the country has increased significantly. Says Jaresko: “The amount of media coverage that the uprising generated was better than a $10 billion ad spend for Ukraine – it was fantastic PR.”

As a result, now seems a good time for the private equity managers in the region to get back to work. As investment activity gains momentum in the region, funds on the ground are likely to enjoy a head start. Provided the country can maintain a degree of political stability, others will undoubtedly follow them into a country that mesmerised the world for 13 days last year.