The Role of the Polish Private Equity Sector in the CEE Region

The aim of the article is to analyse the position of the Polish private equity sector as a leading player in the CEE region and to assess the impact of these funds on economic development. It has been pointed out that the fund sector is operating in an increasingly unpredictable environment (which could be seen during the financial crisis) and operates based on demanding regulations and growing risk. The paper presents the role of private equity funds in the CEE region, which by 2004 had seen a noticeably faster growth than in Western Europe, due to the transition to a market economy. The Polish private equity market in the CEE region was further analysed, which as the largest economy in the CEE region is a very attractive place for investors. The conclusions and directions of the role of private equity funds were presented, and it was emphasised that Poland and the whole CEE region are at an early stage of their market development, but their distance to Western Europe decreases from year to year. Currently, the CEE private equity market in the most developed countries offers great opportunities to its investors thanks to high competition, high growth potential and comprehensive solutions. 132 Jacek Grzywacz, Ewa Jagodzińska-Komar


Introduction
Poland is surely the most attractive econom y in the C EE region due to its size (the biggest in the region), well developed capital market and stable banking sector.
Its m arket has developed institutions that support private equity funds, such as the The m ain goal o f the paper is to assess the role o f the Polish private equity sector in the C EE region and identify its growth outlook for the forthcom ing years.

Role of Private Equity Funds in the CEE Region
Private equity funds cam e back to the CEE region in 1990 when Central and East European markets opened up to foreign markets and adopted principles o f the market economy. We need to stress, however, that the private equity market in the C EE region is still at its initial development stage.    Yet, private equity m arket in C entral and Eastern Europe is relatively young com pared to well-developed W estern European econom ies or the United States.

Analysis of the Polish Private Equity Market as the Major Market in the CEE Region
Their portfolios include big enterprises from the sectors such as, e.g., technology, the media, medicine, telecom m unications and logistics, side by side with medium-sized com panies offering innovative products and services (start-ups). is much m ore difficult to raise capital at the stock exchange and entrepreneurs are m ore and m ore inclined to use private equity funds as a potential IPO alternative9.

Development Outlook for the Private Equity Market
Private equity market in Poland is growing every year and privatisation of state-owned com panies has becom e m uch less attractive10.
The analysis shows that the outlook for the growth o f the private equity market is very promising. As indicated above, there is a relationship between GDP per capita and private equity investment (higher G D P translates into higher private equity funds). It is expected that in the future Polish private equity market will be as strong as that in Germ any or France11.
However, such estimates are relatively highly risky considering previous Polish experiences often stimulated, unfortunately, by the unwillingness o f many private equity funds to finance development projects. The climate o f risk surrounding various investment projects successfully discourages potential investors from engaging in such ideas even if they represent a high development potential.
The European Investment Fund belongs to the European Investment Bank Group and a m ajor investor in private equity funds in Europe, whose goal is to support small and m edium -sized enterprises in Europe. The fund invests in the SM E sector using also venture capital. Since 1999 it has operated across the whole CEE region (in Poland since 2001). 8 The study involved 26 funds representative o f the private equity sector. 9 Initial Public Offering -making a public offering on the stock exchange for the first time. funds are currently in the highest demand and they close w ithin 12 and 15 months, respectively13.
As stated in the K PM G Report14, private equity funds in Poland will primarily invest in enterprises in the middle stage o f their development, seeking m oney for further growth. M ost o f the surveyed enterprises assessed the access to debt financing as good and experienced no problems in receiving it, which is why they realise that the collaboration with private equity funds offers them better prospects to enter international markets.

Conclusion
In Europe, Poland is considered a leader in private equity market development in the C E E region due to, inter alia, the relatively stable econom ic perform ance over The above presented data confirm s that Poland is an attractive destination for private equity investors. Its econom y offers15: According to the survey conducted by the K PM G 16 consulting company, private equity funds in Poland enjoy double or even triple return on investment. Polish mar ket offers good growth prospects because o f its advantages discussed above, which are expected to attract even m ore investors. Clearly, when formulating optimistic outlooks we need to be rather cautious about the assessment of developments when it comes to the econom ic situation. Especially, when risk analyses performed by private equity funds are quite subjective and qualitative by nature. As a result, declarations made by their representatives about being ready to support interesting projects quite often rem ain empty words.
In the light o f the analysis, which has taken account o f diverse reports, we may conclude that private equity funds will grow dynamically in the forthcom ing two years and it seems justified to say that Poland is one o f the most promising markets in Central and Eastern Europe in terms o f the num ber o f profitable takeovers, which are expected to grow in the near future.