March 1, 2012
Interviewed by: David Snow
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“Tremendous Maturation”

Turkey is turning the corner to becoming a much more mature private equity market, according to Jeffrey Leonard, President and CEO of Global Environment Fund and current Chairman of the Emerging Markets Private Equity Association. Leonard’s firm has done two investments in Turkey over the years, including one that “did not go well.”

In a candid interview, Leonard shares his first-hand analysis on a major economy that has been under-penetrated by private equity.

Turkey is turning the corner to becoming a much more mature private equity market, according to Jeffrey Leonard, President and CEO of Global Environment Fund and current Chairman of the Emerging Markets Private Equity Association. Leonard’s firm has done two investments in Turkey over the years, including one that “did not go well.”

In a candid interview, Leonard shares his first-hand analysis on a major economy that has been under-penetrated by private equity.

David Snow, Privcap: Jeff, private equity in Turkey– your firm has made how many investments there?

Jeffrey Leonard, Global Environmental Fund: Over the years, we’ve made two primary investments in Turkey.

Snow: What stands out to you as being unique to the Turkish private equity market in its stage of development now?

Leonard: Well, I think in many respects, Turkey is already undergoing a tremendous maturation of the private equity market and the potential for private flows of capital. You can see that measured by just the number of new general partners that have burgeoned in the Turkish market in recent years. For many, many years, Turkey has been on the cusp of that. There’s been tremendous opportunities for private capital. But there have also been barriers.

There have been barriers associated with high inflation or volatility within the marketplace, regulatory issues in certain areas, sometimes lack of transparency in terms of the ability to transact and complete deals. In many respects, I’ve often thought of Turkey as the little brother of Brazil, in that Brazil’s always been the country—‘Tomorrow will come.”  So many of the best entrepreneurs in Brazil have a saying that says, “We make money at night while the government sleeps.”  In many, many respects, I think Turkey, following by several years the Brazilian market, exhibits that.

But today, all those things have really come together. I think the markets are much more transparent. The opportunities are great. A few years ago it was the presumed ascension to the European common union, common market that was going to drive that. But now I think it’s just Turkey’s a pivotal and industrial giant in its own right. So it’s great opportunities.

It still is a very cyclical country. I think Turkey is a little bit still in the realm of “if Europe gets a cold, then Turkey gets pneumonia” syndrome. It’s not quite able, as Brazil has been, spinning out and being a little counter-cyclical to the rest of its previous advanced capital markets. But in so many sectors, Turkey is growing, and the ascendance of the middle class and the influx of global industrializing, manufacturing businesses that want to use Turkey as a platform are creating these opportunities.

Snow: Just very briefly, what was the most recent deal that your firm, Global Environment Fund, did in Turkey?

Leonard: We had an investment in the health care sector in Turkey. That business did not go well for us, and it was mainly associated with the business cycle. This was a business which we expected to be able to grow based on the middle-class consumption of health care services, the privatization of health care services, the ability to pay for those services, at the very same time that Turkey was cycling into a negative economic environment, an environment where the cost of local borrowing was extreme, and it was very difficult to grow the business into that headwind.

So we ended up divesting the business. We divested it, actually, to a local Turkish investment group. And my sense is that business will do just fine in the long-term. One of the humbling aspects of our business in private equity is you have a certain cycle, and you work through that cycle, and if you’ve held something for four or five years and it’s not going in the direction you want to, you may be providing liquidity for yourself at the very time when it would be best to be coming in as an investor.

Snow: Will you be investing in Turkey again?

Leonard: Absolutely. As I said before, it’s a market with terrific opportunity, terrific demographics. The economy’s great, entrepreneurship is strong in the country.

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