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Institutional investor profile: George Kintis, CEO, TANEO

Kintis on the promise of the Greek market, on reconciling government backing with commercial objectives, on the importance of integrity and on why it’s make or break time for the industry.

TANEO, or The New Economy Development Fund, is a Greek government-backed fund of funds. Based in Athens, the fund has E150m under management, of which E105m comes from overseas investment institutions and Greek investors and E45m from the Hellenic government. The fund was structured by UK fund of funds group Westport Private Equity. TANEO’s remit is produce financial returns at the same time as jump-starting the venture capital industry and boosting economy in Greece by investing in Greek private equity funds. It will invest in all types of funds from buy-outs through to early-stage venture capital. Kintis is also chairman of the Hellenic Venture Capital Association and was previously vice chairman at NBG Venture Capital, the venture capital arm of the National Bank of Greece.

You raised your fund in an unusual way. Why was that?
‘We raised our fund through the bond markets. The main reason for this was because our fund offers investors government guarantees and we needed to ensure that we abided by the European Commission’s rules on state aid. We also had to reconcile these factors with our internal policy.

‘It was a complicated situation, but I think that we have devised and novel and interesting way of raising capital to invest in private equity funds. In fact, some people are looking at what we have done and may replicate it in other less developed private equity markets. It allows governments to raise capital on an off balance sheet basis to help foster their venture capital industry. It’s also very transparent – the government does not get involved in where the fund is invested.’

What type of investments do you make?
‘Our main preference is for early-stage venture capital funds, but we do look at all types of private equity funds. In fact, our first commitment was to a mezzanine fund.

‘The small size of the Greek market means that we have to be opportunistic in the way that we allocate our capital. Unlike other funds of funds, we do not have investment targets for particular areas or stages of the market. We will also invest up to 50 per cent of the capital being raised by a fund – much more than other, more traditional, types of investor. Private equity firms here have so much difficulty raising money that we couldn’t do it any other way. Pension funds, for example, are not allowed to invest in private equity. As a result, I anticipate having invested all our capital by the first quarter of 2005.’

What other types of limited partner are present in the Greek market?
‘Other than us, there are very few private equity investors in Greece. There are certainly very limited numbers of institutional LPs. The other main source of capital for our venture capital funds is the shipping magnates. They tend to be among the wealthiest of Greece’s private individuals. Times have recently been very good for them and they are now looking to diversify their investments. They are sophisticated, cosmopolitan people who have lived abroad. They understand the mechanics of private equity. So we see a lot of interest from that group of people. But overall, it’s a difficult environment and that’s why our main goal is to support private equity in Greece and foster competition.’

How do you reconcile the objectives of fostering a nascent venture capital industry with those of producing good financial returns for your investors?
‘My personal view on the prospects for venture capital in Greece are very positive, of course. Equity financing was non-existent here until the mid to late nineties when the stock markets started booming. It dried up again after the crash. So what you have now is an economy that’s growing briskly – at around four per cent a year. There is a huge demand for equity finance but there is little available. If you look at the Greek banking industry, a substantial part of that is still in state hands and so it is not very efficient. That means there is not much competition to provide finance to growing businesses.

‘There are a lot of opportunities here, but people are just not very familiar with private equity as an asset class. We are trying to educate investors about its characteristics and the promise it holds in an immature and developing market such as ours. I think returns will follow this.

‘As a result of all this, I don’t think that we will be sacrificing returns because we are helping to build a private equity industry – quite the contrary.’

Are you able to invest in non-Greek funds that make some investments in Greece?
‘The only way that we could invest in a fund that is not based here is if it structured a sub-fund. We cannot invest in vehicles that don’t invest exclusively in Greece. We’ve had some contact with European fund managers and they are not yet that keen on Greece for a number of reasons. But as time goes by and people see the types of deals being done and that can potentially be done, I think we’ll start seeing fund managers take more interest in the market. It’s the unknown that is making people wary, especially at the moment. People are still licking their wounds from the aftermath of the internet boom.

‘For me, investing in Greece is a no-brainer. Of course, I would say that, wouldn’t I? But it goes back to the fact that there is so much growth potential and yet there is virtually zero equity financing. That means that as a venture capitalist in the market, you have people queuing up for finance – you can get the pick of the best deals and you have no competition. It’s a very interesting market.’

Do you make direct or co-investments?
‘We don’t make any form of direct investments. That is partially for legislative reasons, but it’s also because we believe that we shouldn’t be making them anyway. It’s for the managers to make the right investment decisions, not us.’

When you have such a small pool of managers to choose from, how do you meaningfully assess them?
‘We look at the usual criteria of people, people and people. But it’s not as straightforward in Greece as in other markets because people just don’t have track records. That means that we often have to look at who the other investors are in the fund. That is not a usual means of making investment decisions in other markets, but it makes sense here. This is because we want to follow smart money. If smart money is following a particular team, then it augurs well. So we examine the investors almost as much as we examine the team.’

Other than experience, what do you believe is lacking in managers in Greece?
‘Experience is the main problem is Greece. But the good thing is that, during the recent bubble, a lot of well educated and experienced people came back to Greece, especially from the UK and US. They saw that people were making a lot of money here and they wanted to have a go. They ended up working for brokers and banks, but they now find that they are not making the money they anticipated and so they are looking for more entrepreneurial lines of business. That means there is a steady supply of talented individuals either setting up on their own or looking at private equity as a career. So I don’t think we have a skills deficit as such, but we do have a deficit of experience.’

What would put you off investing in a fund?
‘The most obvious thing that would put us off is if we suspected any impropriety – either in the past or in the present. This is a small market and we know everyone in it. That allows us to do very thorough background checks. In fact, I’d say that honesty is the single most important thing here. My view is that, as long as you have managers that are relatively skilled and relatively diligent, they are going to make a killing in this market and that will bring us and their other investors excellent returns, but only as long as they don’t do anything improper.

‘The importance of integrity is another reason why we place so much emphasis on looking at the other investors in a fund – it’s a network of trust. Smart money will follow certain managers and that is a vote of confidence, especially when you consider that it’s their own money. It’s not institutional money – the majority of the money comes from private individuals.’

Where are the most interesting areas for you?
‘The most interesting areas are really the traditional small and medium-sized companies in Greece that are trying to modernise. They need investment to increase efficiency through IT and they are trying to expand outside their domestic territory. Many of them are looking to win a Europe-wide audience for their products and services. So there are a lot of good, solid Greek companies that need funds to expand abroad and modernise processes. This is really interesting because it’s very low risk, but with a very high potential.’

How would you characterise owner-managers’ attitude towards private equity?
‘As with any young market, there is a lot of resistance to private equity because most of the businesses here are traditional, family-owned companies. But they don’t have any other alternative. As a result, it’s relatively easy to convince them. The reasons for resistance are really down to the fact that they are unfamiliar with private equity. These are businesses that have never had outside shareholders, but they are learning fast. Part of our role is to help encourage entrepreneurs to choose private equity and to help educate them in how it works. We run seminars in which we invite business owners and venture capitalists to meet each other. We do quite a lot of work in this area, but I have to say that nothing convinces them easier than their need to get the money.’

What frustrates you about the market?
‘The lack knowledge about venture capital among institutions here is a source of frustration to me. We are doing a lot of work to help in the education of these institutions. But much of their hesitation is understandable. Just ten years ago, our interest rates were in the high double-digits – in the 20 to 30 per cent range. There was absolutely no point in looking at venture capital because you could just hand your money to the government and get a 30 per cent return. And, when interest rates started coming down, we had the stock market boom and people started making 100 per cent over a year. So, there was still no reason for people to invest in venture capital. Now that we have a more stable economy, there is very good reason for the industry to develop. It’s just a case of convincing them, and that takes a long time.’

What is the biggest issue facing the industry?
‘The biggest issue facing the market here is that this is make or break time. When we were in bubble times, everybody made money, they then started to lose it when the markets crashed. If the venture capital managers don’t make money over the next few years, then the industry is dead in the water. No-one will touch it again. This is a vital stage in the industry’s young life.’

How do you think that the market will develop?
‘If we are successful then the market has a huge potential for growth. There are clearly enough good people around to manage the funds. The main constraint is getting people to commit to private equity funds in the first place. But hopefully, we will get to a situation in which Greek institutions understand the value and dynamics of the venture capital industry. My other hope is that venture capital becomes a funding option that entrepreneurs consider seriously rather than the deals happening on an opportunistic basis.’

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