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Future of Economies: German and Czech Economies Stagnate with New Investment Strategies

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The economy of Germany and the Czech Republic will beto stagnate for years. Foreign investments have stopped flowing into the region, there is a war going on behind the threshing floor, and high energy costs are suffocating economies. According to Jaroslav Havel, co-owner and head of the largest law firm in the Czech Republic, the future in growing economies is led by the United States.

That is why Havel and his partners founded a new company, One Family Office, in which they intend to jointly manage their assets with other business partners. The first major foreign investment in the amount of one billion crowns went to two of the world’s ten most famous private equity funds.

Private equity funds are funds of private capital and usually take the legal form of qualified investor funds. They are therefore persons who meet certain minimum requirements for free capital and experience in the field of investments.

You have invested in two US funds. Why into them?

We are currently finalizing investments in private equity funds Vista Equity Partners VIII and KKR Ascendant. If you consider that we have been operating our law office for almost 23 years, we have saved something during that time and we need to take care of this property. One Family Office was therefore primarily created for the need to protect and value our own property.

However, we invest at the same time with business friends and partners for whom we provide legal services, so our strength is no longer negligible. Having so many creditworthy clients allowed us to build One Family Office from the ground up as if we were managing a billion dollars. It’s important in terms of the power of the family office, especially abroad, because a billion dollars is such a basic number for Forbes.

Jaroslav Havel (50)

  • managing partner of Havel & Partners
  • co-founded the law firm in 2001, today Havel & Partners is the largest on the Czech and Slovak markets
  • last year, the consulting part of Havel & Partners had a turnover of 1.5 billion crowns and a gross operating EBITDA profit of about 400 million crowns
  • specializes in comprehensive legal and tax advice

We wanted funds that invest globally or in the Americas, for the sake of diversification and also because the economy there is growing faster. Vista Equity Partners is among the absolute top private equity firms focused on enterprise software. Software is a very attractive industry due to its low capital requirement, high margins, huge scalability and a significant trend towards digitization even in traditional industries (Industry 4.0).

Vista Equity Partners’ funds have long-term significantly higher valuations than is the standard in the private equity industry. Historically, the reasonable net realized return on investment is 28 percent per year. KKR, in turn, is one of the three largest asset managers in the world. Its founders are also the fathers of private equity founders. We like this fund because it invests in medium-sized companies in America, where there is a decent chance to make a little more money. Historically, they have achieved an average return of 22 percent per year for fifty years. A total of 700 companies passed through their hands.

A number of Czech and Slovak billionaires, as well as professional investors, medium-sized entrepreneurs or general and financial directors of large companies co-invest with us in the Vista and KKR funds.

How was the negotiation with KKR, who is a legend in the industry?

Extremely fast, pleasant and constructive. Unfortunately, the quality and speed of data provision cannot be compared with local private equity funds or venture capital funds. After all, almost 50 years of experience and the work of a team of hundreds of super smart and efficient professionals must be known somewhere. In general, foreign funds are interested in our group not only as an investor, but also as a strategic investment and consulting partner in Central Europe.

You also talked about the fact that you are planning two more investments this year. What will it be?

We will definitely invest in one fund that focuses on management buyouts. I won’t be specific yet, but it will be a fund that is among the two best in the industry. Another investment will be another technology fund, or a fund that invests in loans to companies as an alternative to bank financing. This is now very popular in the west. These funds earn from 12 to 16 percent.

Banks are essentially slow because they are highly regulated and need to either lend against real estate or lend long term loans. There is also scope for providing shorter corporate loans in the Czech Republic, we also offer this service in our group.

How do you see the potential for participation in One Family Office among your clients? For example, the J&T Arch group’s fund originally planned to reach a size of one billion euros, but today investors have invested two billion in it. There is definitely an investment appetite in the Czech Republic.

J&T Arch originally had – if I remember correctly – an idea of ​​their own performance significantly lower, but that was at a time of almost zero interest rates. Back then it was around seven to eight percent, but they ended up with a significant double-digit return in the last two years. It is a successful concept. This was probably mainly due to the extraordinary performance of Daniel Křetínský’s EPH group. They reallocated their assets away from bonds and similar instruments into this fund. In addition, you are probably watching that Penta announced something similar. In other words, they put part of their assets into the fund and invite investors. It makes sense, it’s a nice pattern.

However, it is a completely different situation than ours. As a multifamily office, we do not create any huge funds, but we co-invest fundamentally smaller amounts of money ranging from 50 million to one billion per investment. We want to invest in the Czech Republic at the upper limit of the yield of typical funds of qualified investors, i.e. between 12 and 20 percent per year, and we believe that our longer-term and less liquid investments abroad will achieve a yield of 20 percent or more, including the possible use of leverage. That is, the way real dollar billionaires invest. At the same time, we have a number of people around us who are among the billionaires, mostly with assets of one to 25 billion crowns, who are typically our partners who want to invest with us.

Why do you think it is not possible to achieve such a return in the Czech Republic as in the USA or elsewhere in the world?

It’s the state of our economy. We have been getting closer to the world for years thanks to the fact that we mainly had cheaper labor here, and foreign entities, first Western and then Asian capital, penetrated here.

However, things have turned around lately and there are several factors. These are the problems of Germany, where the real estate market is absolutely at the bottom. The crisis in the automotive industry has not yet occurred, but it is coming. Europe has completely fallen asleep in the move towards electromobility in its entire industrial vertical, which today is dominated by China. Overall, the Germans and by extension Europe have a problem, for example with energy, and the growth of their economy is hovering around zero.

In Slovakia, the political situation has been critical for years, which means a huge outflow of the best brains. Both countries are our two largest trading partners, and we in the Czech Republic are also not doing well by drawing European funds, etc. There is also the energy crisis, the war in Ukraine… With the advent of the war, the arrival of foreign investors stopped both in the field of mergers and acquisitions and real estate investments.

In contrast, America already had four percent GDP growth last year, India eight percent… So international money is not going to our region, but elsewhere. Here, this situation will continue for many more years, and even if the war ends in two years, it will take another five to seven years before Germany is put together. I think it is irreversible.

So do you see any opportunities in the Czech Republic, which is now stagnant?

We have long been very active in consulting venture capital funds in the Czech Republic. We invested small amounts in 11 of them and achieved good appreciation. But there are a large number of these funds and I am relatively skeptical that all the money will be returned to the investors.

I am similarly skeptical about further massive increases in house prices. I think that they are relatively expensive in the Czech Republic, when you compare it with, for example, Poland. It certainly depends on the type of real estate, for example logistics real estate will be there – thanks to the fact that we are a strategically important country for the transport of goods across Europe, quite well.

Of course, the prices of residential real estate in Prague, Brno, Bratislava are high and people will increase their prices because they want to live in those cities. So until real estate is substantially taxed, prices will be high. If they were taxed like in France or Spain, people would of course sell their investment apartments immediately. It is purely a question of taxation, because with high taxation, real estate will not be attractive to the common citizen.

Is the intergenerational transfer of property still current?

Yes, it is the biggest opportunity not only in the Czech Republic and Slovakia, but in the entire region of Central and Eastern Europe. In the West, there is already multigenerational capitalism, and it is said that the transition from the first generation to the second is always the most difficult. Parents succeed in handing over the company to their children in roughly one third of cases. There is therefore a huge scope for sales, whether positive, when everything is in agreement, or sales under pressure, as a result of, for example, inheritance disputes and the like.

So we see this process as the biggest opportunity, which is why we entered as a general partner in an extremely promising fund that focuses on these things. It is the Adax company succession fund, which targets medium-sized companies, where succession is the most difficult. This fund was recently strengthened by Vladimír Dlouhý.

2024-04-14 16:30:00
#crisis #begun #closer #lawyer #investor #Havel #Seznam #Zprávy

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