Clare Nuttall in Almaty -

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Today is the time of the Kazakh consumer, according to Eldar Abdrazakov, chief executive of Centras Capital. Almaty-based Centras is about to make the first investment from its buyout fund, through which it plans to benefit from this growing phenomenon. With two now venture capital funds also created in the last year, the firm is rapidly developing its private equity business, alongside its two other activities - securities and insurance.

Discussing the Centras Private Equity Fund, Abdrazakov says he is seeing a new generation of companies already starting to emerge to serve the growing Kazakh middle class. "Our focus is on the emerging Kazakh consumer. Today there is rapid growth in the wealth of the population, with GDP per capital increasing from $1,700 to $7,000 a year." But unlike in the Asian model, he adds, "Kazakhs want to spend." This much is evident from the brand new SUVs clogging the streets of the commercial capital Almaty, and the designer clothing, jewellery and electrical goods stores sprouting up everywhere.

While the consumer boom has been a common factor across Central and Eastern Europe, Abdrazakov considers that Kazakhstan - like Russia - has the potential to be larger than most. "Eastern Europe was a convergence play with Western Europe. In Russia and Kazakhstan it's a different story - growth on the back of commodities."

Although private equity is not directly involved with the commodities story, Abdrazakov notes that it's feeding the rest of the economy. "For example, in previous times Kazakhstan was limited by having only one pipeline, via Russia. Now we have three," he says. "This country is on a path of structural reform. After the problems in the construction industry, the economy is getting back to the way it should be."

Broader beat

However, the fund, which had a first closing round on $30m in April 2007, has a broader focus than consumer goods and retail. In addition to pure consumer sectors, it also invests in two other sectors related to the growth of spending power - basic materials such as construction materials, and financial services (excluding banking and property finance).

Centras' first private equity investment will be in the latter sector; it is currently waiting for regulatory approval to buy a local non-life insurance company. "It's an area we know well," says Abdrazakov, since insurance is one of the firm's three core activities. "Insurance is still a growth area. Our insurance business is looking at annualized revenues for this year that show a 20-fold growth in three years."

Centras started as a team of 20 that was spun out of Kazkommersbank's investment group in 2004. It has grown considerably over the last four years - the company now employs around 140 professionals at offices dotted around Almaty and has around $150m under management. In addition to its private equity and insurance operations, it runs a securities business, through which it provides brokerage services and corporate finance, and manages several mutual funds - Treasury, Centras Global Markets and Centras Terra Cognito. It has moved into private equity in the last 18 months, raising its debut fund with investments from the European Bank for Reconstruction and Development, and the UK government's emerging markets fund of funds CDC.

Abdrazakov says the difficulties that companies are now encountering in obtaining loans, after several years of cheap and easy credit, are a catalyst for the development of private equity in Kazakhstan, not just at Centras. However, he considers it too simplistic to say the banking sector is the cause of private equity developing in Kazakhstan. "Certainly, it helps that the people are starting to look a bit at equity, but it's not only the problems in the banking sector. There are also problems with the development of the stock market the legal market, corporate governance, and so on."

In addition to its buyout fund, Centras also manages two venture capital funds, each with $20m under management. The Centras Venture Fund is backed by the National Innovation Fund, a fund of funds set up to help the VC industry get off the ground. It invests in high-tech companies in Kazakhstan. The second is a specialist vehicle set up in cooperation with the National Nuclear Park, which was set up to develop nuclear technologies and fund a second life for the application of existing discoveries in the field. Given the very early stage of Kazakhstan's high-tech industry, Abdrazakov says that "our venture capital is completely different from the US model of venture capital."

Although Centras has already made eight investments through its Venture Fund and is about to close its first two through the nuclear fund, Abdrazakov admits that finding suitable companies to back is not easy. "The problem we have is, even when we have inventors, they still lack entrepreneurial skills," he says. "We tend to act more like an incubator than a venture capital investor."

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