Central Europe’s fast-growing economy attracts global investors: Abris

More investors choose safer assets in developed regions such as the US and Western Europe today with rate hikes and liquidity tightening. But Poland-based private equity manager Abris Capital Partners has a different view, with more focus on Central Europe’s great potential.

Central Europe has consistently outperformed Western Europe in economic growth – Poland and Romania are forecast to see GDP growth of 2.7% and 3.5% in 2024, respectively, versus 1.7% for the European Union, says Abris’ Managing Partner Pawel Gierynski.

The region has the potential to increase investment penetration. Private equity investment in Central Europe averages 0.2% of its GDP, compared with 0.8% in Western Europe, he said.

He believes South Korean investors can take advantage of long-lasting relationships between the country and Poland. Korean firms have invested more than €6 billion ($6.6 billion) in Poland and became one of the largest foreign investors there in 2021, Gierynski says. He added Korea’s construction of a nuclear power plant in Poland will strengthen trust between the two nations, and furthermore, will increase investment opportunities in Central Europe.

The following is his article on Abris' investment strategies and perspectives on Korean investors. 

▲ Please introduce Abris Capital Partners. What are the firm's target region and strategies and how does it differ from other asset managers?

“Abris Capital Partners is the leading private equity fund manager and environmental, social and governance (ESG) transformation specialist focused on mid-market opportunities in the major European Union-11 countries. The firm was established in 2007 by two founding partners – George Swirski and Neil Milne – and the Harvard Management Company. Over the years, the shareholding evolved; today, the company is owned by the founders, Steven Richmond and me.

We seek to identify and partner with the most successful and dynamic mid-market businesses in Central Europe, which can benefit from an input of capital and management expertise at both strategic and operational levels while strengthening growth through ESG transformation.

Over the four years of our investment period, on average, we see those companies transforming from simple local businesses into regional business gems. These companies become especially attractive for potential investors thanks to the strong professionalization our teams bring to the table.

With almost €1.3 billion of assets under management, Abris has obtained financial backing from leading global investment institutions, including corporate and public pension plans, financial institutions, funds of funds, and US university endowments.”

▲ How do you evaluate the investment landscape in Europe at present?

“Over the past six months, the EU economy has performed better than expected. As the disruptions caused by the war in Ukraine and the energy crisis clouded the outlook for the EU economy and authorities globally embarked on tightening monetary conditions, a winter recession in the EU seemed inevitable. However, we saw positive growth in Q1 2023, lifting the outlook for the EU economy instead.

Despite the modest level of appetite globally from institutional investors, there are several exciting investment opportunities in Europe at present, particularly around sustainable investing, where Europe has assumed global leadership, and also in specific regions such as Central Europe, where economic growth remains stronger than in other EU countries.”

▲ Why is the Central European region so attractive to potential investors?

“Central Europe occupies a strategic position at the crossroads of Western and Asia, providing access to a large market of over 100 million consumers and serving as a gateway to other European markets.

The region’s consistent outperformance of Western Europe in economic growth will continue – Poland and Romania are forecast to see GDP growth of 2.7% and 3.5% in 2024, versus 1.7% for the EU. At the same time, GDP per capita in Central Europe sits at just €14,000 versus €43,000 in Western Europe, offering significant headroom for convergence.

The region also boasts a highly educated and skilled workforce, with a strong tradition of technical and engineering expertise and a focus on innovation and R&D. Therefore, Central Europe is home to industry clusters in various sectors, including automotive, manufacturing, information technology, biotech and finance.

Central European countries have also made significant strides in creating favorable business environments in recent years, implementing economic reforms, simplifying regulations, and improving infrastructure. This ease of doing business and efficient legal systems contribute to the overall investment attractiveness.

Despite this, investment penetration has not yet reached levels seen further west, with private equity investment in CE averaging just 0.2% of GDP, compared with 0.8% in Western Europe. Such a business landscape presents an enormous opportunity for experienced investors who know the region well, are deeply plugged into local networks and markets, and can deploy capital and support regional businesses with international expansion and mergers & acquisitions.

Central Europe combines this attractive growth profile with developed economy-like stability, differentiating it from other emerging economies, and while the recent geopolitical and macroeconomic turbulence is affecting Central Europe, the magnitude of the impact on economies and businesses has not differed substantially from Western Europe – nor is it likely to in the future. Finally, the Central Europe region benefits from a continuous inflow of EU funding supporting a further infrastructure catch-up, with €210bn of cohesion funding arriving between 2021-2027.”

▲ Why do you think Central Europe is attractive to Korean investors?

“Let me start by saying that South Korea and the countries of the Central Europe region share a similar history, typified by the struggle for independence and the proximity of historically aggressive neighbors. It indeed developed several cultural similarities.

Businesswise, Poland is the largest country in the region, accounting for around 40% of the population, and in 2021, Korea reached the status of the largest foreign investor in Poland. Therefore, not surprisingly, more than 500 companies have a Korean shareholding registered in Poland.

Over the last 20 years, Korean companies have invested more than €6 billion in Poland. For example, within the scope of strategic governmental cooperation, the Korea Hydro and Nuclear Power Co. (KHNP) will build a nuclear plant in Poland, and the Incheon International Airport Corp. will assist in building the new Polish central airport. These investments will contribute to the stable growth in foreign exchange between Korea and Poland, reaching almost $6.5 billion in Korean exports in 2021.

I believe this long-lasting record of respectful cooperation makes our countries trustworthy and reliable business partners and should encourage future streams of investments.”

▲ There are several private equity players in the region. What makes Abris different from other investors?

“What makes us truly different is our focus on building the value of investments through ESG transformation. Our portfolio companies are leaders in ESG integration in the region and have a clear climate change strategy, helping to spearhead the transition to net zero.

These companies are fit for the future and are more able to adapt to a changing world, readily complying with regulatory and societal demands. I am convinced they will deliver better long-term returns for our investors and us. They will be the winners and the game-changers.”

Gierynski joined Abris at inception and is the firm’s managing partner. He has more than 20 years of private equity experience and has been instrumental in the development of Abris’ activities across Central Europe. His focus is on structuring and leading an efficient investment practice and building a strong network within regional business communities. 

Prior to Abris, Pawel was a managing partner at Copernicus Capital, with responsibility for the management of National Investment Funds that has formed Poland's mass privatization program. Gierynski has held C-suite positions, including chief operating officer of Mostostal Warszawa SA, a Warsaw-listed construction group.

Jihyun Kim edited this article.