Finnish pensions insurer Veritas and LHV Pension Funds, Estonia’s second largest pension fund manager, are among six investors committing €70m to a pan-Baltic private equity fund.
Domiciled in Latvia, the Livonia Partners-managed fund will invest €3-15m of equity and mezzanine capital per investment in up to 12 small and medium-sized enterprises (SMEs) active largely in Estonia, Latvia and Lithuania. The first investments will be made in the next few months, with the possibility that firms in adjacent countries could also receive funding.
Livonia Partners Fund I will acquire a blend of majority and minority stakes, acting as a hands-on investor and holding the stakes for around 5 years. Though it has a generalist mandate, the fund’s initial focus will be on manufacturing, business services and consumer companies, reflecting the management team’s experience.
The €2.8bn Veritas has committed €5m from its private equity allocation. Ilona Karpinnen, portfolio manager, private equity, Veritas, told IPE: “Livonia fits well into our private equity portfolio, as European small and mid-market buyouts are the backbone of our private equity programme.
She added that Veritas did not usually back inaugural fund launches, but that Livonia was “very well connected within the local economies.”
She added: “Building regional champions instead of country-specific winners makes a lot of sense. Economic growth in the Baltic region is among the strongest in Europe and the fundamentals are in good shape.”
Kristo Oidermaa, portfolio manager at LHV Pension Funds Oidermaa added that the fund commitment fit well into its existing strategy, allowing it to benefit from growth in the Baltic market.
“Our investment strategy has a small home bias and we regard all three Baltic countries as our home markets,” Oidermaa said. “Over the last few years, we have considerably increased our allocation of alternative assets, with commercial real estate and timber and now private equity funds.”
Kaido Veske, co-founding partner of Livonia Partners, said that the fund would focus on mature companies with a track record of up to 5 years and an annual turnover starting at €5m, but up to €40m.
He added that the fund is looking for companies with an export focus and which were undercapitalized, and that while earnings volatility in the region would still be higher than elsewhere in Europe, the countries in question also boasted higher growth than Europe as a whole.