Questions raised over the future of PBK Inwestycje
by Aleksander Nowacki
PBK Inwestycje, one of the few locally incorporated private equity funds, is going through a period of restructuring while the industry is buzzing with speculation that the fund's liquidation is likely.
The fund's president Aleksander Mokrzycki believes that "liquidation is not going to happen," though he concedes that, "in theory you cannot rule out any scenario. To my knowledge, it is not really an option." Mokrzycki goes on to say that he could not disclose any details of the fund's strategy or plans for the future until "we have finalized the analysis of our situation," which is likely to be at the end of November or in December. The analysis is not "done internally," he adds.
"A vehicle under the name of PBK Inwestycje, or under a different name, will exist," he says. "Its construction will, however, be different." Mokrzycki says that he is unable to specify what changes are likely, as "it does not actually depend on me." He merely states that the model for financing the fund's activities "will have to change. The current model, decided on by the bank at the outset, is not sustainable."
The fund is currently more than 70 percent financed through debt instruments, an unusual model for a private equity fund. Capital Partners, the only other institution on the local market to use a similar financing structure, has also recently modified its strategy, opting to act as a corporate finance consultant rather than as an active investor itself.
Barbara Nowakowska, managing director at the Polish Private Equity Association (PPEA), says that the debt-financing model is "extremely unusual" on the market, as it adds to the fund's costs. It reduces returns on equity since all the fund's capital is tied up from day one, a problem avoided under the usual model of investment commitments. It also adds to debt-servicing costs.
A fund manager, who declined to be named, says that liquidation is rumored to be the most likely outcome of the fund's 'restructuring'. This, he says, would be "very sad news" for the industry, as PBK Inwestycje is one of the few local funds.
PPEA's Nowakowska says that the association "is convinced that in order for the industry to develop in a healthy way, it is necessary to acquire more domestic sources of finance." At the moment, the legal obstacles to local investment in private equity, such as the five percent limit on pension funds' exposure to foreign assets, makes this impossible. She adds that the activity of domestically incorporated funds is hampered by their "unusual structure", which means that the assets are subject to double taxation, as both the fund and investors are taxed on the same revenues. She says that "it would be very welcome," if legal changes were implemented to create a more favourable environment for private equity. While work on such legislation is in progress, it is likely that PBK Inwestycje will not live to see them put in place; at least, not in its current form.
