PE Special Features
PE in emerging markets goes local   Emerging markets: Australia, its PE's Asia story   Emerging markets: South Africa's experience, diversity and access to debt   Emerging markets: Turkey, playing catch-up   Emerging markets: Brazil, domestic powerhouses

Turkey is quite possibly the most developed economy in the world of emerging markets. In terms of local private equity, however, it lags the field by a considerable distance. Just three firms constitute Turkey's indigenous PE industry: Turkven, Actera Group and a new firm, Mediterra Capital Management. Their combined funds under management total less than $1.4 billion.

Private equity in Turkey "is not nearly as big as it should be, considering the size of the economy," says Murat Yesildere, an Istanbul-based consultant with recruiter Egon Zehnder International. He predicts increased activity. "I see more people trying to move into" private equity, he says. "They are trying to gather together to form new funds."

Mediterra Capital illustrates that optimism. It made its first close last May, raising $144 million for a fund designed to invest in middle-market companies in Turkey. Another firm, Crescent Capital, is raising capital for a clean energy-related fund, although details are scant.

There are many reasons why Turkey has been slow to develop more PE. One of the biggest is a relative lack of homegrown capital. Commercial banks are nowhere to be seen when it comes to PE support. Given the size of the economy, Turkey is severely underserved by insurance and pension funds. Tellingly, while Mediterra Capital has been able to attract some high-net-worth individuals in Turkey, Turkven's current $428 million fund has no local limited partners.

There have been some spectacular deals. The biggest was TPG Capital's $2.1 billion sale a year ago of spirits maker Mey Içki Sanayi ve Ticaret AS to Diageo plc. But global private equity firms have a relatively sparse track record in Turkey, considering it has 73 million people, a per capita income of more than $15,000 and one of the highest economic growth rates in the world over the past decade. Kohlberg Kravis Roberts & Co. LP, for example, made its first investment in Turkey only in 2007. That same year, Carlyle Group opened an office in Istanbul, the first among global firms. So global PE firms haven't provided the same opportunities as training grounds as they have in other emerging markets.

That's beginning to change. Advent International Corp. opened a liaison office in Istanbul in 2010. Cerberus Capital Management LP announced a joint initiative last October with Istanbul stockbrokerage Garanti Securities. The latest entrant, Murat Erkurt, a former partner at Lehman Brothers Inc.'s PE unit, set up Mediterra Capital along with Ahmet Faralyali, a former KKR executive.

Turkven is the pioneer of Turkish PE. The firm was co-founded in 2000 by Seymur Tari and Evren Unver, who both cut their teeth with McKinsey & Co. Their initial fund closed in 2002 at $44 million, the first time an independent manager successfully raised money in Turkey. The second closed in 2007 with $428 million. Turkven is now raising money for a third fund, with a target somewhere around $1.2 billion.

Actera has also come on strong. It closed its first fund in 2007, raising $500 million. Its two founders combine Western banking and PE experience. Isak Antika headed J.P. Morgan Chase & Co.'s investment banking for Central and Eastern Europe, Middle East and Africa. Murat Çavusoglu served as managing director of Southeast Europe Equity Fund, an early regional PE effort sponsored by Soros Fund Management LLC investing in Turkey, Southeast Europe and the Caucasus.

There are other encouraging signs. Middle Eastern capital is looking more generally with increased interest at Turkey, says Yesildere, particularly after unrest in several Mideastern countries has made investment dicey. Turkey wins by default. "Mideast investors more and more are evaluating opportunities of bringing in money," Yesildere says.

Dubai-based Abraaj Capital Ltd. is particularly active. Last month, it said it would sell Turkish hospital chain Acibadem Saglik Hizmetleri ve Ticaret AS for $1.03 billion to an investment arm of the Malaysian government. Abraaj's country head for Turkey, Selcuk Yorgancioglu, told Bloomberg News the firm was in advanced negotiations with three or four Turkish companies. "Turkey proved to be a market where large deals can go the full cycle for private equity," Bloomberg quoted him saying. That's new.