SEB Wealth Management has committed €16.4m from 10 of its pension funds in Estonia, Latvia and Lithuania to investment in small and medium-sized enterprises in the Baltic region via the BaltCap Private Equity Fund II (BPEF II).
The three biggest pension funds in the fund’s second close, totalling €22m, are SEB Progressive Fund in Estonia, SEB Active Fund in Latvia and SEB Pensija 2 in Lithuania – among the largest pension funds in their respective markets.
The pension fund investment was split €5.7m from Estonia (three funds), €5.6m from Lithuania (two funds) and €5.06m from Latvia (five funds).
It is SEB Wealth Management’s first investment in BPEF II.
The other investors in the second close are a private equity fund-of-funds run by eQ Private Equity, and J-Investicijos Family Office.
BPEF II had its first close at the start of 2014 and now has €81.5m of available capital, with subscribed commitments of €85m.
The target size is €100m.
A number of pension funds invested in the first close, including Estonian pension funds managed by LHV and Danske Bank, and Swedbank’s pension funds from all three Baltic states.
Other existing investors include the European Bank for Reconstruction and Development and the Baltic Innovation Fund managed by European Investment Fund.
BPEF II makes equity investments in innovative companies based in the Baltic region with the potential to become internationally competitive.
It does not focus on specific sectors but on buy-and-build opportunities, seeking to acquire controlling ownership stakes, and typically investing between €5m and €10m per portfolio company.
BaltCap will act as an active medium-term investor working in partnership with management teams to build market-leading companies in their respective sectors.
BPEF II’s first investment has been a 75% stake in Ecoservice, the leading waste management company in Lithuania.
Jānis Rozenfelds, chief executive at SEB Wealth Management Latvia, said: “BaltCap’s experienced team possesses the know-how and the necessary skills to find companies with the best growth potential among the small and medium-sized businesses across the Baltics.”
He said that, given the limited size of the listed equity market, this was a way to gain exposure to the higher growth potential of the investors’ home region.
According to Rozenfelds, a typical Baltic pension fund historically has allocated well below 5% of its total assets to private equity and venture capital.
Some funds may have allocated between 5% and 10% to alternative investments, while others have shied away from this asset class completely in the past.
Rozenfelds said: “The risk/return characteristics of private equity will provide an additional benefit of diversification in our mixed/balanced pension fund portfolios.
“At the same time, the BaltCap fund will invest in companies that may eventually be listed on the local stock exchanges, thus supporting the future development of our listed equity markets as well.”
BaltCap is an independent private equity firm focusing on small and mid-market buyout and expansion capital investments in the Baltic states.
Since 1995, BaltCap has been managing several private equity and venture capital funds with total capital of more than €260m and has made more than 60 investments.
Martin Kõdar, managing partner at BaltCap, said the planned return for all the company’s funds was in line with the returns of top-quartile, small-cap buyout funds.
BPEF II will continue the strategy employed by BPEF I, whose eight completed investments have doubled their aggregate revenues over the past four years, reaching €230m in 2013, and quadrupled earnings before interest, taxes, depreciation and amortisation.
Several companies have carried out significant international expansion, and the number of employees across the portfolio has grown by half, to 2,700, during BaltCap’s tenure.