Determinants for allocations to Central Eastern Europe venture capital and private equity limited partnerships

Abstract

Growth expectations and institutional settings in Central Eastern Europe (CEE) seem favorable for establishing a vibrant venture capital and private equity (VC/PE) market. However, the risk capital supply there is rather small in relation to the growth prospects. We examine the determinants of institutional investors' CEE allocation decisions through a questionnaire addressed to limited partners worldwide. Investors in CEE VC/PE limited partnerships are very knowledgeable about the region, they also appreciate other emerging regions, they regard entrepreneurial opportunities in CEE as very favorable, and they attribute local general partners in CEE with a high level of professional quality. In more detail, they appreciate team independence and the match of fund strategies with the teams' backgrounds. As economic growth expectations are fairly high in all emerging regions, investors focus on other allocation determinants, notably on the potential of institutional and cultural characteristics to turn the economic growth into entrepreneurial activism.

Keywords:

• venture capital
• private equity
• CEE
• international asset allocation
• institutional investors

Notes

1. We define CEE countries as those Central Eastern European countries that recently (i.e. 2004 and 2007) gained accession to the European Union: Bulgaria, the Czech Republic, Hungary, Poland, Romania, Slovakia, Slovenia, and the Baltic States, which include Estonia, Latvia and Lithuania.

2. According to Figure 1 from EVCA (2009).

3. Dow Jones and Company: The Directory of Alternative Investment Programs, Dow Jones and Company: Galante's Venture Capital & Private Equity Directory, Private Equity Intelligence: The Global Fund Raising Review, and Private Equity International: The Global Limited Partners Directory.

4. Please refer to the discussion in Groh and Liechtenstein (forthcoming, b).