S strategic goal of the Hungarian Venture Capital Association is to attract the country’s pensions funds into the asset class, says Szabok Soos of the association. The 1998 Venture Capital Act is currently being overhauled.
The Czech Republic faces similar needs for a legal overhaul. “The most pressing issue is to provide a transparent and tax efficient structure,” says Horak. A survey on the Czech market published last May by the CVCA and Ernst & Young, highlights a list of priorities for the venture capital and private equity market, including the need to offset of capital gains and losses, and dividend gains and losses, against liquidation of investments; limiting the many tax disincentives on stock options (currently taxed at issuance), including abolishing social and health tax on their exercise; reducing the tax disincentives on transactions such as mergers, equity takeovers and sales; tax and legal support for managers of administrators of bankrupted funds; and investment access for pension funds and insurance companies.
In the meantime, there have been some initiatives to allow local pension funds to participate legally in private equity. Last year Euroventures Hungary, a private equity firm backed by ABN Amro obtained E15m of EBRD funding for Euroventures Hungary III, a fund structured to allow co-investment by Hungarian pension funds. In September the Polish private company Copernicus Capital Partners announced plans to launch the region’s first fund of funds, which aims to raise PLN300m – 600m (E62 to 125m), largely from Polish institutional investors such as pension funds, and invest primarily in medium-sized buy-out firms in the region with E30m-100m under management.
Critically, adoption of the EU pensions directive, allowing pension funds to invest 5% of their assets in ‘alternative investments’, including private equity, will allow local institutional investors to participate in the industry. In the Czech Republic, for instance, adoption will happen in May when the country formally joins the union. “The adoption of the directive is positive news, a new window of opportunity,” says DBG’s Jaroslaw Horak. “One of the problems we’ve had is that up till now all the investors except one (Ceske Sporitelne which has committed E30m to private equity) have been foreign”.

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