Fondul Proprietatea: what change does ROCA FP want to bring?

The investment strategy for Fondul Proprietatea of the candidate for the position of administrator ROCA FP is built on two main directions, namely direct investments and a Fund of Funds component, according to the presentation given yesterday by Andrei Cionca, representative of the partnership between IRE AIFM HUB in Luxembourg and Impetum Management.

Andrei Cionca said: "ROCA FP is a partnership between a Luxembourg fund manager, which has all the authorizations from the Luxembourg market supervisor and which will ensure the corporate governance of this project, and a local team, deeply rooted in the concrete realities of the Romanian economy, which has quite a rich experience in local investments. The Luxembourg fund manager currently manages 35 investment funds, respectively 49 sub-funds, of which 15 are specialized in private equity and venture capital, one of them being in Romania itself. The local team, which has developed ROCA, Agista and ROCA X to date, manages assets of just over 100 million euros, which, for Romania, is an impressive figure. In total, the assets that the team members manage together - the international component and the local component - are somewhere around two billion euros, five times the net assets of FP”.

The ROCA FP representative pointed out that Fondul Proprietatea needs a change of strategy to remain relevant and sustainable in the long term. "The current liquidation strategy has fulfilled its role, but the economic context now requires a change, and recent results confirm this. Dividends received by the Fund decreased from over 1.2 billion lei in 2020 to just 145 million lei in 2024, with a further decrease estimated for 2025. At the same time, the level of dividends distributed to shareholders also decreased significantly, from 1.1 billion lei in 2021 to 212 million lei in 2024. These developments confirm the need for a new strategic direction, aimed at ensuring both attractive returns and the Fund's relevance in the long term," said Andrei Cionca.

• Direct investments in Romanian and regional companies and a Fund of Funds component

ROCA FP was chosen as the preferred candidate by the Board of Representatives of Fondul Proprietatea, but the election of the administrator for a four-year period is due to take place at the end of next month, following a meeting of FP shareholders.

The partnership between IRE AIFM and Impetum Management proposes a long-term strategy, built to reposition Fondul Proprietatea as an investment engine and catalyst for the Romanian economy. Currently, the current strategy is already showing signs of no longer generating value for shareholders, while the Romanian private equity market remains insufficiently explored, although it has the potential to offer superior returns, contributing to the development of the economy. Otherwise, the continuation of the current liquidation strategy is shaping up - with the risk of losing relevance and the disappearance of dividends, according to a statement from ROCA FP yesterday. Essentially, the partnership strategy between IRE AIFM and Impetum Management for Fondul Proprietatea is built on two main directions:

- Direct investments in Romanian and regional companies in strategic sectors - technology, healthcare, renewable energy and manufacturing industries - with the aim of generating added value, dividends for shareholders and jobs;

- A Fund of Funds (FoF) component, through which the Fund's capital will support the development of local private equity and venture capital funds, contributing to the maturation of the investment ecosystem in Romania and facilitating entrepreneurs' access to financial resources and expertise.

"We aim to move from a controlled liquidation structure, as the Fund currently is, to an active investment structure, capable of providing annual results to investors, over the long term,” says Andrei Cionca.

• Development scenario and continuity scenario

The ROCA FP proposal includes two scenarios. One is the development scenario, which involves transforming the Fund into an investment engine, with sustainable growth and real impact in the medium and long term. The alternative scenario - in case the shareholders' approval for the development strategy is not obtained - is the continuity scenario, in which the status quo is maintained, but with decreasing dividends and depletion of assets as new companies are listed or stakes are sold.

"In the first period, we will focus on managing the current portfolio and accelerating the listing of the three important companies, in order to capitalize on the favorable moment generated by the listings announced by the Government and the obligations assumed through the PNRR. This approach will be reflected in special dividends and attractive returns for existing investors,” says Andrei Cionca.

At the end of July, Aeroporturi Bucureşti, Administraţia Porturilor Maritime Constanţa and Salrom were the three main holdings in the Proprietatea Fund's portfolio.

The ROCA FP representative stated that no investments will be made in entities from the ROCA universe. "We have a very well-established conflict of interest policy with the FP Representatives Committee, in the sense that Fondul Proprietatea will not invest in anything related to the entire portfolio developed by the team members. The managements of the investment funds - ROCA, Agista, ROCA X - act absolutely independently, and Fondul Proprietatea will not invest in anything related to them," said Andrei Cionca.

According to the ROCA FP representative, the proposed management fee is reduced by 11% in the continuity scenario. In the development scenario, the manager is remunerated through a 15% performance fee, applied only to the profit obtained above the minimum threshold of 8% annual return (industry standard), calculated based on the total evolution of the share price.

• Andrei Cionca: "We are thinking about issuing bonds and, as the discount decreases, the fund will be able to increase its capital"

The ROCA FP team is proposing as its first milestone the threshold of one billion euros in net assets for Fondul Proprietatea, which today is around 420 million euros.

"The relevance of the fund will increase step by step. In a first stage, it must be demonstrated that you make investments both directly and through "fund of funds" type structures, which show the investment thesis and have high returns. With this thesis, we will address local investors. As the value of the fund increases and we demonstrate traction and sustainability, I believe we will be able to access increasingly larger investor classes. The area is highly sought after, and the barriers to entry are related to local expertise, which those coming from the West do not have," says Andrei Cionca.

The ROCA FP representative added: "In the detailed strategy that we presented to the FP Representative Board, we set ourselves a net asset of one billion euros. We believe that this is the first milestone that must be met. If the Fund is, let's say, in the top ten in Central and Eastern Europe with net assets, which are currently 400 million euros, then it will certainly be in the top five at one billion. The moment you demonstrate that you have the ability to invest, growth will be more accelerated. For this reason, we must start from the beginning with a regional thesis. Because, if we start with a purely local thesis, we will very quickly hit the national barrier."

To finance the investments, the ROCA FP team will rely on internal and external sources, including the issuance of bonds. "We will propose a balanced structure between distributions to shareholders and investments, of course explaining the strategy we have, namely that we are doing this for the sustainability of the fund. In addition, we are also thinking about new sources of capital. At the moment, any capital increase is completely unattractive, because there is a discount to the nominal value. Therefore, we are thinking about issuing bonds and, as the discount decreases, I believe that the fund will be in a position to make a capital increase," said Andrei Cionca.

• How will the partnership between IRE AIFM and Impetum Management work

The Proprietatea Fund will be managed by the Luxembourg entity, which will make investment and divestment decisions based on information provided by the local team, said the ROCA FP representative.

"The actual administrator of the Proprietatea Fund will be the IRE AIFM in Luxembourg which, being authorized by the Luxembourg supervisor, has all the governance and best practices. Everything related to the decision-making process, the effective implementation of governance is authorized there. This is the model that is used very widely throughout Europe. The administrators who ensure governance are in Luxembourg or the Netherlands, the rest are local teams, and the relationship between the two parties is very clearly established by contract", said Andrei Cionca.

According to the ROCA FP representative, decisions will be made by an Investment Committee at the level of the fund administrator - namely the company in Luxembourg.

"But the governance team cannot do anything without the local team, which is a provider of local information. The partnership ensures that the local information is correct and that the decisions made fully correspond to the governance agreed both at the level of the fund manager and at the level of Fondul Proprietatea”, said Andrei Cionca.

The ROCA FP representative added: "Governance is the way in which a decision is made. There is an investment policy that you have to present to the shareholders and the regulator and you have to make sure that everything you do in the portfolios you manage is part of this policy. There are levels of compliance, risk analysis on three stages - country, fund, investment. But it will not be a one-way movement, but a back and forth, a permanent exchange of information”.

• A group of shareholders requested an audit of the selection process for the appointment of the fund manager

The election of the Fondul Proprietatea manager by shareholders will take place for a four-year term, on September 29. The partnership between IRE AIFM HUB of Luxembourg and Impetum Management was selected as the preferred candidate by the FP Board of Representatives, a choice contested by a group of shareholders who requested an audit of the selection process.

The shareholders also requested the cancellation of the fund manager selection process and the approval of the Board of Representatives to start a new process, based on the condition that it has assets under management at least equal to the value of Fondul Proprietatea's assets. Another option for shareholders is to renew the mandate of Franklin Templeton, who has been at the helm of FP since 2020.

Also at the end of September, Fondul Proprietatea shareholders will have on the table the proposal to distribute the amount of 37.2 million lei as dividends from FP's undistributed retained earnings for the year 2024. For July, Fondul Proprietatea reported a Net Asset Value of 2.13 billion lei, equivalent to a trading discount of 36%. FP's stock market value amounts to about 1.36 billion lei.