At a recent conference held by the Bulgarian Development Bank, the Croatian Development Bank (HBOR) announced that it plans on launching a new program to invest €100 million in alternative investment funds. This announcement prompted our reflection on the status of this industry in Serbia and the Western Balkans in general.
Alternative investment funds, primarily private equity (PE) and venture capital (VC) contribute greatly to the dynamics of an economy, adding value through job growth, innovation, and consolidation to stay ahead of global macro-trends. In Serbia there is no native PE fund, or PE industry to speak of; yet some of the best PE transactions in Central Eastern Europe (CEE) have in fact occurred in Serbia. We are speaking of the Bambi, Knjaz Milos, Walter and Gomex transactions, just to name a few where the investor funds returned a high multiple on their initial investments (Gomex and Walter are still held by the PE firms but have demonstrated impressive growth). This is particularly evident in economies that prioritize fostering a supportive regulatory environment and infrastructure, such as Croatia and Bulgaria, where success stories abound.
Despite this, Serbia has demonstrated its potential by attracting significant investments in key sectors such as FMCG, health care and hospitality, illustrating the untapped opportunities for growth.
The non-EU countries of the Balkan region, of which Serbia is the largest, seem to have been forgotten by an industry which contributes so much to the economic activity of our neighboring countries. In Europe, small and medium sized enterprises (SME) backed by PE funds saw an increase of 12.4% in employment numbers during 2022 (5% of total jobs in EU are in companies that are PE backed). Most notable was Bulgaria where PE backed companies saw a 34% increase in headcount in the same period.
Firstly, for a PE fund to exist it needs both capital and a place to deploy that capital. The latter should not be an issue for Serbia, which is home to many companies with founders who are reaching an age where succession planning is now an urgent topic and where so many sectors are poised for consolidation. But the former (access to capital) seems to be a strong issuefor the non-EU countries of the Western Balkans, and namely for Serbia.
When surveying the active funds in CEE, we can quickly identify that European institutions tend to be a key funding source for new funds, second only to national institutions. Often, as is the case in Croatia and Bulgaria, the national initiatives align with European institutions to deploy greater funds, reach better results and provide a good framework for it to be a reliable source of funding for new and upcoming funds. HBOR, as mentioned at the beginning of this article, provides a great example of showing how support and co-financing by the European Investment Fund (EIF) supports a countries and institution’s initiatives and sets the stage for success.
Secondly, as every Mergers and Acquisitions (M&A) professional in the Balkan region knows, when a client comes into their office with the idea of selling a company, the M&A professional naturally thinks of PE funds who might be buyers. Those funds are currently from Hungary, Bulgaria, Croatia, Slovenia, but never Serbia, North Macedonia, or Albania.
First, national institutions that have a development focus, could create similar schemes such as the one currently underway in Croatia. That is, create a fund of funds approach (as in the case of HBOR and Bulgaria for example), providing funding for new and emerging managers. This initiative could be done inconjunction with International Development Finance Institutions to support the initiative.
A second approach would be to allow private pension funds, insurance companies, banks, and other “typical” investors in PE & VC funds to invest in this asset class. This is currently prohibited in Serbia, in spite of the fact that as of 2019, a law was enacted enabling the existence of PE & VC funds in Serbia. Such efforts could also align with broader strategic goals, such as fostering innovation and supporting startups in high-potential sectors like technology and green energy.
As professionals in the M&A and the fund management business, we are aware of brave initiatives of a few individuals to create PE/VC funds locally, and there is enormous potential for this asset class to not just exist but to drive the latent consolidations in the market and provide Serbian entrepreneurs the exit mechanisms they currently lack. It would be a win/win for all to see Western Balkan funds reap the benefit of the growth of these local economies.
As the neighboring countries launch a new round of funding for private equity andventure capital, they are expanding their region of interest to include countries of the Western Balkans in the hopes of capturing a larger market and opportunities. Serbia can do the same and enter this market at this opportune timing and create regional champions of the investment world.
At the same time, the government and political powers in place have a significant role to play in incentivizing private equity by deploying initial capital that serves as an anchor investment, or to incentivize other investors to do so through regulatory change. Additionally, the lack of awareness and education regarding the benefits of PE among local entrepreneurs and policy makers further delays progress.
This foundational funding can attract corporations and private individuals to participate, creating a robust base for future investments in these funds.
Private equity holds transformative potential for Serbia and the Western Balkans, as evidenced by the region’s untapped opportunities and success stories in neighboring countries. By addressing structural challenges—such as improving access to capital, fostering regulatory reform, and enhancing awareness of PE's benefits—Serbia can unlock this industry’s capacity to drive economic growth, innovation, and market consolidation.
A strategic collaboration between national institutions, international development finance organizations, and private investors could catalyse the creation of a robust local PE eco system. Now is the opportune moment for Serbia to act, leveraging regional momentum and positioning itself as a key player in the broader European private equity landscape.
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