An Introduction to the EBRD

Transcription

1 An Introduction to the EBRD Baltic Pension Funds Sound Investment and Local Finance Tallinn, Estonia December 6, 2012 Noel Edison, Director Insurance and Financial Services European Bank for Reconstruction and Development

2 EBRD Promoting Open Market Economies Founded in 1991 and headquartered in London Owned by 63 countries (incl. USA, Japan, Russia, France, Germany, UK) and two inter-governmental institutions (EU & EIB) Promotes transition to market economies in 34 countries from central Europe to central Asia Recent additions of Egypt, Morocco, Tunisia & Jordan 2041 Staff in a Network of 36 Offices around our region EBRD has 21 years of investment experience across central Europe, Russia, CIS, Western Balkans and central Asia The largest single investor in Central and Eastern Europe and the Commonwealth of Independent States Capital of EUR 35.5 billion (EUR 8.23 billion undrawn) and total assets of EUR 47 billion AAA-rated International Financial Institution

3 EBRD Countries of Operations

4 EUR Billion EBRD s 21 Year Record - Signings 80 EBRD s 21 year record - signings Cumulative Gross Signings*: All sectors Debt 64.1 billion Equity 12.7 billion billion invested in over 3,489 projects Financial Institutions 27.1 billion invested in 1,419 projects 10 0 Debt 23.7 billion Equity 3.4 billion *Data as at end August 2012 FI is a key element of the EBRD s portfolio 4

5 Insurance and Financial Services Portfolio and Products EUR Million Products Equity and debt financing for the following non-bank financial activities: Insurance Pension & Asset Management Leasing Consumer finance Other: - Stock exchanges - Brokers - Deposit insurance - Non-performing loans 1,600 1,400 1,200 1, Insurance and Financial Services Portfolio: 1.3 billion as at June 2012 Structured finance (ABS, DPR, RMBS, Covered Bonds, SWAPs) Current Portfolio June equity and 51 debt Projects Insurance Leasing Structured finance Pension & Asset Management Consumer finance & other

6 Insurance and Financial Services Deal Criteria Debt Debt Equity Equity EUR Million Short to medium-term Subordinated or senior debt Reputable local or strategic partners Finance mature financial companies to neargreenfield Local or foreign currency Subject to availability EUR Million Medium to long-term Reputable local or strategic partners Invest in mature companies to neargreenfield Different exit mechanisms are available (IPO, sale to strategic or financial investor)

7 Insurance and Financial Services Technical Cooperation Technical Cooperation (TC) intends to strengthen institutions by transferring relevant knowledge and industry best practise TC can be funded by donors to complement the EBRD investment where a need is identified by the management or shareholders The EBRD can assist with sourcing, hiring and contracting consultants. Assignments are tailored for each client Possible areas for TC are: Institutional Development Programmes for individual financial companies Underwriting, claims handling and risk management knowledge transfer for insurers Advice on Data Protection laws and suitable systems for compliance Other technical advice as needed by the client s industry or circumstance Example: EPF Investment - provided TC for compliance with Data Protection Laws.

8 EUR Million LHV AM: The Creation of a Local Performer TRANSACTION SUMMARY Countries EBRD Stake Sector Estonia 34.8% Asset Management MANDATORY PENSIONS UNDER MANAGEMENT March 2002 HIGHLIGHTS Product Equity Amount EUR 3,300, Source: Finantsinspektsioon Estonia LHV AM is among the top performers in asset management (market share 17%) Estonia ratified a new pension legislation in 2001 containing three pillars (PAYG, mandatory private pension and voluntary private pension) LHV AM was the only local company to apply for a mandatory pension fund license EBRD s involvement bolstered LHV AM s reputation allowing it to compete for customers with more recognised but non-specialised banks Exited in 2009

9 Renaissance Life Insurance: Promising Greenfield Venture TRANSACTION SUMMARY RUSSIAN AND UKRAINIAN LIFE INSURERS IN 2011 Renaissance Life Insurance August 2004/April 2006 Countries EBRD Stake Sector Product Russia and Ukraine 30% Life Insurance and Pensions Equity Amount USD 24,000,000 RGS VSK & RESO Ingosstrah Soglasie MSK Alfastrah Rosno RIG Uralsib Yugoria 29% 22% 14% 7% 6% 6% 6% 5% 3% 3% ALICO AIG GRAWE TAS RIG KD Life PZU Blakitniy Polis Generali Garant UNIQA Fortis 7% 5% 5% 4% 4% 4% 4% 18% 23% 26% August 2004/April 2006 HIGHLIGHTS Source: Official market statistics Renaissance Life Insurance (RLI) is a venture set up in 2005 in Russia and in 2006 in Ukraine RLI has grown to be among the top-10 retail life insurers in Russia and among the top-5 life insurers in Ukraine It is one of the few companies in Russia to sell both life insurance and pensions through the same distribution network Russia and Ukraine still offer huge growth potential with insurance penetration levels far below CEE average EBRD s brand name and reliable support contributed significantly to RLI becoming one of the leading life insurers in Russia and Ukraine

10 PRVA Group: Developing an Efficient Pension Management in SEE EUR Million TRANSACTION SUMMARY March 2007 Countries EBRD Stake Sector Product Slovenia, Serbia, Kosovo and Macedonia 20% Asset Management Equity Amount EUR 5,800,000 ASSETS UNDER MANAGEMENT Q Q2011 HIGHLIGHTS Source: PRVA Group PRVA Group is a leading pension fund management company in SEE EBRD acquired 20% of the Company in 2007 to actively support the development of the pension reform in the region PRVA Group has been expanding and today has successful operations in four countries in SEE With the state still playing a significant role in most of the countries, the pension sector offers much future growth potential EBRD s investment supported PRVA Group to become a leading SEE asset management company in less than 3 years

11 European Pension Fund: Supporting the Growth of the Private Russian Market TRANSACTION SUMMARY December 2011 HIGHLIGHTS Countries EBRD Stake Sector Product Amount Russia 27% Asset Management Equity USD 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% MARKET SHARE OF PRIVATE PENSION FUNDS IN OPS MARKET 15% Source: RBC, Kommersant 85% 79% 2010 PFR NPF 2011 European Pension Fund (EPF) is a start-up pension and asset management company which commenced operations in late 2010, specialising in managing compulsory pension savings To actively promote the emergence of a private pension fund industry in Russia, EBRD became a shareholder of EPF in February 2012 EBRD s first direct investment in the Russian pension sector While the state-owned Pension Fund of Russia (PFR) dominates, the private sector has been growing strongly, increasing its membership from 7.8m citizens at YE2010 to 15.4m at YE2011 In its first full year of operation, the company significantly expanded its distribution network and acquired over 50,000 new clients with assets under management of over RUB 1.7bn, while establishing strong internal risk management systems and maintaining high level of customer service

12 Moscow Exchange: Developing Russian Capital Markets TRANSACTION SUMMARY LARGEST EXCHANGES BY VALUE OF BONDS TRADED IN 2011 Rank Stock Exchange USD bln Countries Russia 1 BME Exchanges 17.4 EBRD Stake 6.29% 2 LSE Group Johannesburg Exchange 2.8 Sector Stock Exchange 4 NASDAQ OMX Colombia Exchange 0.9 Product Equity 6 Korea Exchange 0.7 January 2012 Currency RUB 7 Oslo Bors ISE 0.5 HIGHLIGHTS Source: WFE, World Federation of Exchanges Moscow Exchange is one of the top 20 global securities exchanges in terms of trading volume, resulting from the merger of MICEX and RTS in 2011 The investment is a part of a long-term strategy to promote the development of local capital markets in Russia The project will facilitate transforming Moscow into a globally important and competitive international financial hub It is the first EBRD investment in a trading exchange in one of its 29 countries of operation EBRD will appoint the Board of Directors nominee to contribute to the exchange s development strategy and further improve listing and reporting standards Moscow Exchange is targeting an IPO by mid Moscow Exchange 0.3

13 Local Currency and Capital Markets Development Initiative LC2

14 Background to LC2 EBRD engaged in local markets since 1990 s CEE dependence on external Capital - $ & Necessity since early 90 s Attraction of EU accession / process in 1990 s Facilitated FDI 2-wave financial crisis showed vulnerability Collapse of cross border capital flows Devaluation pressures mitigated by resources and IMF Vienna Initiative in 2009 and LC2 in 2010 Joint initiative with the IMF and World Bank

15 LC2 and EBRD Key strategic initiative Key international focus - G8 G20 IMF MDBs Key in EBRD supporting CEE & SEMED in de-globalisation Provision of sustainable finance EBRD unique operational and policy competences Operational: Banking/Finance Policy advice: Legal, Economic Engagement: Private / Public sector Connectivity: IFI / MDB Capacity: Risk and Donor

16 Key Features of the Initiative Holistic Approach Macroeconomic Policy Local Capital Market Development Market Institutions Products Legal/Regulatory Environment EBRD s approach emphasizes 3 pillars of market development Isolated efforts in any one pillar would not produce desired results EBRD s Comparative Advantages Proximity to the private-sector; ability to invest in institutions which play key roles in market development Hands-on experiences in emerging markets Collaboration with other bi- and multi-lateral development agencies and international financial institutions to complement each party s expertise

17 Baltic Region is a Special Case Euro denominated Currency translation risk not evident Investors Pension funds are large but see a lack of attractive and acceptable investment opportunities only 6% of funds invested locally Issuers Little incentive to list locally Very little local issuance by corporations and government

18 EBRD Private Equity in the Baltics

19 Baltics within the EBRD Portfolio Since 1991 EBRD invested over 1.7 billion in the Baltic countries with a total project value of over 5 billion 70 % in the private sector Debt : 1.2 billion Equity investments 500 million Cumulative Business Volume FI 36% Energy 12% Infra 27% ICA 25% Current Portfolio Direct and through Baltic focused funds and regional CEE funds, mobilising further finance Current portfolio 572 million Energy 25% FI 15% Regional 21% Infra 37% ICA 2% EBRD 2012, all rights reserved 19

20 Baltic Direct Equity Portfolio 23 direct investments in the Baltics, of which 10 in financial institutions Fully realised multiple (including write-offs) of 3.2x made up of: Banks 6.2x and non-bank corporate investments 1.7x EUR 200 m EUR 180 m EUR 160 m Non-bank corporate investments by country Lithuania Latvia Estonia EUR 140 m EUR 120 m EUR 100 m 138 EUR 80 m EUR 60 m x, 9.6% IRR EUR 40 m EUR 20 m 0 2.9x, 230.2% IRR x, -1.0 %IRR Investments at Cost EUR 105m Realized Value incl WO EUR 181m European Bank for Reconstruction and Development

21 Baltic Direct Equity Portfolio All EBRD 2/3 of the return proceeds came from investing in banks Manufact & Services, 6% Other, 3% Ins & Fin Services, 10% At Cost Info & Com Techno, 34% Agribus, 15% Banks, 32% Ins & Fin Services, 7% Manufact & Services1% Other, 2% Info & Com Techno, 12% Agribus, 15% Banks, 63% By Total Value European Bank for Reconstruction and Development

22 EBRD Private Equity Funds EBRD s portfolio of funds: 20 years of investing in the asset class General portfolio 137 funds 92 fund managers EUR 3.0 billion in commitments to funds with capital of EUR 15.0 billion Approximately 1,200 underlying investments, up to 70% exited (including WO): Russia / CIS 2.4x CEE (excl Baltics) 1.8x Baltic focused 16 funds actively invested (7 Baltic specific funds) Note: EBRD tracked portfolio only to June 2011, excludes real estate funds Note: The number of underlying investments exclude regional investments and investments in Greece 13 fund managers (3 Baltic specific) *Excludes donor funds ** Russia, CIS and CSE EUR 313 million in commitments to these 16 funds with capital of EUR 1.7 billion Approximately 100 underlying investments for ~EUR 430 million (cost), up to ~70% exited (including WO): Baltics 1.6x European Bank for Reconstruction and Development

23 EBRD Equity Funds Investing in the Baltics Sector Allocation Services shows the most active investment activity since 2008 TIM still dominates the unrealised part of the portfolio Wholesale & Retail, 7% Agri & Forestry, 0% Construct, 1% Consumer, 7% Manufact, 5% Pharma & Medical, 2% Primary & Energy, 1% TIM, 55% Services, 22% Wholesale & Retail, 5% Construction, 3% Consumer, 8% By Investment Cost Agri & Forestry, 1% TIM, 47% Manufact, 6% Pharma & Medical, 2% Primary & Energy, 1% By Total Value Services, 27% European Bank for Reconstruction and Development

24 EBRD Equity Funds Investing in the Baltics EUR 429 million invested companies, 70% exited Exited investments including write-offs 1.6x Exited investments excluding write-offs 1.9x EUR 250 m EUR 200 m Lithuania Latvia Estonia Fully realised, including write -offs EUR 150 m EUR 86 m 1.6x EUR 100 m EUR 62 m 1.4x, 8.6% IRR EUR 18 m EUR 50 m EUR 14 m 1.3x, 12.3% IRR EUR 101 m EUR 55 m 1.8x, 16.9% IRR EUR m Investments at Cost EUR 131m Total Value EUR 206m European Bank for Reconstruction and Development

25 Equity Funds Investor base whole EBRD region Impact of the crisis on the fund raising considerable - proportion of IFIs and Governments have increased significantly 100% 80% 17% 15% 6% 15% 15% 8% Fund of Funds Other 60% 40% 20% 0% 29% 53% 64% 9% 2% 18% 23% 1% 13% 9% 1% 3% June 2011 IFIs & Government Agencies Corporate Investor Banks & Insurance Pension Fund European Bank for Reconstruction and Development

26 Company Performance The EBRD Baltics portfolio has experienced difficulty in recent vintages as Baltic economies have experienced contractions but companies delivered strong returns in pre-crisis vintages 2.5x Gross Multiples by Vintage 2.0x 1.5x 1.0x 0.5x 0.0x Note: Gross return multiples of investees in Lithuania, Latvia and Estonia EBRD 2012, all rights reserved 26

27 0.27% 0.27% 0.26% 0.25% 0.24% 0.22% 0.19% 0.19% 0.19% 0.15% 0.14% 0.11% 0.09% 0.06% 0.05% 0.03% 0.02% 0.01% 0.35% 0.33% 0.48% 0.48% 0.44% 0.59% 0.68% 0.88% 2011 PE Investment as a % of GDP 1.00% 0.90% 0.80% 0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% * Baltic Countries: include: Estonia, Latvia, Lithuania Source: EVCA/PEREP Analytics, RVCA and EBRD Estimates EBRD 2012, all rights reserved 27

28 Baltic Pension Funds Sound Investment and Local Finance Tallinn, Estonia December 6, 2012 Noel Edison, Director Insurance and Financial Services European Bank for Reconstruction and Development