Turkish funds prepare for 'high growth'

Actera co-founder Murat Çavusoglu told a standing room only crowd at the PEI Turkey Forum that much has changed since local entrepreneurs used to cling to the Turkish saying, 'May God never force you to sell your company'.

Turkey's nascent private equity market has many key factors going in its favour, according to numerous speakers at the PEI Turkey Forum in Istanbul.

“It has a much better regulatory system” than other emerging markets, said Selçuk Yorgancioglu, executive director for MENASA-focused Abraaj Capital and head of its Turkey activities. “Plus corporate governance has advanced significantly in the last seven to eight years,” he said.

Among institutional investors, “it's come to be viewed as a high growth market”, noted Murat Köprülü, chairman of Multilateral Funding International, a New York-based emerging markets investment and financial advisory firm founded in 1987. “Domestic rates of growth are in excess of 4 percent to 5 percent in good cycles, [and] among the emerging markets it's also a large country, the 16th largest economy in the world.”

Murat Köprülü

As emerging markets rebound more quickly than Western markets from the financial crisis' ripple effects, Turkey's “deep bench” of companies and industries will be ripe for private equity investment, he said.

“In a high growth economy there are certain sub-sectors that get a lot of attention”, like energy and related companies, Köprülü said. “But for a large middle income country like this, all manner of services and retail and the like are going to potentially be growth sectors as the GDP per capita vaults above the $10,000 level – it already is that around Istanbul”, where the level was closer to $20,000, he said.

Optimism and building market momentum were palpable among the conference's many speakers and more than 200 delegates. However, many of those present also acknowledged the private equity market's limitations due largely to its immaturity.

Seymur Tari, founder and managing director of Turkven Private Equity, noted Turkey does not yet have enough experienced private equity fund managers. “In a few years, we'll hopefully have a full fledged industry.”

In a few years, we'll hopefully have a full fledged industry.

Seymur Tari

Tari also highlighted the country's lack of managerial talent at senior levels for portfolio companies, an issue discussed frequently by delegates during networking breaks. “We have very good middle managers”, but in order to find or cultivate high level executives such as CFOs and CEOs, private equity firms will need to support the company via operating partners or other methods, much the way large global firms like TPG do, Tari said.

The challenge was to ensure the management team has a strong local presence in Turkey, added Murat Çavusoglu, co-founder and managing partner of Turkey-focused Actera Group.

Serkan Elden, managing director and chief executive of Eurasia for Pinebridge Investments (formerly AIG Investments), said his team confronted this challenge by “investing in partners, not companies”. Choosing acquisition targets based on the management team that corresponds to them is a strategy employed by several established firms including Chicago-based private equity veteran GTCR.

While many Turkish entrepreneurs still need education as to the benefits private equity sponsorship can bring, and may not want to give up control for only marginal improvements or expansion, several speakers stressed that entrepreneurs were now more open to the idea of partnering with private equity firms.

“There is a Turkish saying … that translates to 'May God never force you to sell your company',” Çavusoglu said, eliciting a big laugh from the crowd. “I think we've come a long way.”