Steven Roman in Tallinn -
With the Baltic and Russian economies groaning under the weight of the global economic crisis and markets looking bleaker by the day, picking this time to start up an investment firm specialising in these regions would seem to fly in the face of logic.
Try telling that to the founders of Redgate Capital, an Estonia-based asset management and financial advisory company that opened its doors in December. Not only do they remain undaunted by the current negative investment climate, the downturn is just what they've have been waiting for. "I suppose I won't find a better moment in the next 15 years to start a business, a long-term business, than today," says Veikko Maripuu, one of the firm's founding senior partners. "We see opportunities on a market which is very depressed."
Investing before it's clear whether the market has bottomed may sound risky to an outsider, but Maripuu and Redgate's other top managers should know what they're doing - all three are heavyweights in Estonian business circles and veterans of the Baltic/CIS investment world. Maripuu himself spent several years heading the asset management division of Suprema Securities (later Evli), the Baltics' most successful investment bank. To found Redgate he teamed up with Mart Altvee, the former CEO of SEB Estonia, and later the two brought in Aare TammemÃ¤e, who has worked at the top levels of Baltic real estate and banking.
Discussing why he's so upbeat on today's investment market, Maripuu cited opportunities created by what he sees as an overly emotional response to the crisis. "There hasn't been much analysis of which companies generate good cash flow, and which would prosper in the future. It has been a general, overall, very strong panic all across the board... This environment creates opportunities because there has been an over-reaction in a number of instruments, a number of companies and a number of sectors. And certainly of course we would like to be able to capitalise on that."
But the company's strategy, he stresses, isn't just to pick up a few quick bargains and wait for another boom cycle. "Today we don't need to be too opportunistic," he says. "We would pick the most robust companies... and invest in them long term."
Using the approximately €20m it has collected in seed capital, Redgate is now in the process of setting up investment instruments, which will eventually include Luxembourg-based SICAVs, open-ended collective investment schemes. Redgate's plan is to focus its Russia and former Soviet Union activity on traditional asset management, whereas in the Baltic states, where it can get better acquainted with individual players, it will concentrate on so-called "alternative investments," such as real estate and private equity.
Meanwhile, Redgate's financial advisory wing is already up and running, and in high demand, particularly when it comes to raising capital in this cash-poor environment. Structured finance and merger and acquisition advisory services are also on offer. According to Maripuu, the transaction sizes now range from €2m-40m, though he predicts that number will grow to €70m this year.
Choosing which horses to back
A focus on conservative, long-term investment puts Redgate's general strategy in contrast with the speculative way many investors dabbled in the emerging European markets recently. "When it comes to Russia, we focus on strong companies that would be able to generate cash, that would still be able to pay dividends, and at the same time would be able to recapitalise themselves directly... or which have access to government guarantee programs," says Maripuu.
In Russia's case, he points out, infrastructure is a safer bet than energy as a long-term investment. "Infrastructure in this region is in fairly bad shape. There are programmes already [in place], and once the global crisis will disappear or start easing, these programs will start running again."
He is also positive on the region's domestic demand growth, which he expects to regain its footing once the economy finally turns around.
In the Baltics, Redgate is eyeing real estate in prime locations that weren't available a year or two ago, particularly in segments less effected by economic turbulence.
Even though Redgate has a clear strategy for investment, Maripuu admits that the real problem right now is finding investors in this negative climate. "Certainly of course it's very challenging to find a capital right at the moment, to show investors that there's light at the end of the tunnel... It is a very hard decision for anyone today to start investing again. I'm not going to push anyone. It should be the decision of the investor who would believe as we do that first of all, it's not the end of the world, this region definitely poses some good prospects. And today there are certain assets which are depressed not because of their own financial situation or outlook, but because of the overall misery going on in the market right now."
Those who are most likely to invest here with Redgate, he says, would be individuals or institutions willing to stay in for the long haul. "We have been tied to this region for a long period of time, and we see that despite the crisis right now the [positive] outlook of this region, when it comes to the medium and long term, is definitely there."
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