Key sectors targeting long-term growth

Our strategy is to capture the growth by investing in sectors and companies having the most to gain from the long-term development trends in our investment universe such as EU convergence and the catch-up process. Strong domestic demand is a key driver for growth in Eastern Europe and this is our main investment theme. We target fast growing sectors such as retail, consumer goods, financials and real estate.  

Real estate

Real estate investments provide attractive risk-adjusted returns in comparison with other asset classes and also have low correlation with both equity and bond markets. An improved macroeconomic situation has led to a general lack of modern property across Eastern Europe. The Baltic market is particularly interesting with its close proximity to the Nordic region and economies which have outperformed the rest of Europe. The trend implies lower vacancy rates across all real estate segments and rental rates have started to increase.

Investment activity and Yields

The current yields in the Baltic capital cities provide good investment opportunities. Depending on asset and location, there is generally a positive yield spread of approximately 200-250 bps when comparing real estate assets in the Baltic capitals to Stockholm.The investment activity in the Baltics is expected to continue to be active with the main targets being retail and office properties with strong cash flow and core locations.

Why the Real Estate sector?

  • Attractive risk-adjusted returns
  • Low correlation with other asset classes
  • Inflation protection through CPI indexation in rental contracts
  • Attractive financing opportunities in the current low interest rate environment

Retail and consumer goods

Western consumption patterns are well entrenched within the Eastern European economies with these populations having seen significant increases in the level of disposable income during recent years. Low levels of private income tax, low indebtedness, relatively low levels of utilities and other fixed living costs have kept income free for increased consumption of cars, clothes, better food and holidays. There is also potential for development within the general structure of the retail sector. Modern retail concepts, such as large supermarkets, shopping centres and retail chains are still relatively uncommon in Eastern Europe. Western concepts in marketing, display techniques, shop interiors, and cross selling can be introduced and utilized to further jump start strong consumer activity.

Why the Retail and Consumer Goods sector?

  • Strong consumer demand driven by a growing middle class
  • Strong purchasing power due to low expenses, increasing wages and flat taxes
  • Increasing access to consumer credits

Banking and finance

Investing in the banking and finance sector is generally one of the best ways of gaining exposure to a developing economy as banks with well diversified client bases are, effectively, a naturally leveraged investment into the broader economy. A growing economy creates the need for efficient financial intermediation, so each economy needs a banking system in which transactions are undertaken smoothly and financing is accessible at appropriate risk-based pricing levels. Since a developed banking system is essential for a sound economy, the majority of governments make a concerted effort to develop their banking systems and the regulatory framework in the sector.

Why the Financial sector?

  • Banking is a play on overall economic growth
  • Lower penetration of banking services than developed markets (i.e. deposits/GDP, loans/GDP)
  • Consolidation may lead to merger and acquisition activity