Funds pay administrators bonuses worth up to 3 percent of profit on exit

Former investment manager of Spanish GED fund, Francisc Bodo, said Romanian managers received bonuses worth some 1 percent of profit.

“Granting a bonus for each successful exit varies depending on administrators policies, some never offer exit primes, others reward managers for each successful exit, through money or promotions,” Bodo said.

An investment fund’s profitability is given by the multiplying factor of the invested money (money multiple), Bodo said. The most profitable private equity funds in Romania multiplied the amounts ten times or more, in less than five years.

“The management teams of companies owned by funds received stock option plans, which they can cash on exit. It is a way allowing managers o become directly interested in increasing the business’ value,” says the Country Manager of AIG New Europe Fund, Doina Popescu.

Fund administrators say Romanian companies’ owners expectations were exaggerated in many cases lately, because they were planning on a stable market growth and an easy access to funds.

Companies that administrate private equity funds can reach revenues worth 20 percent of profit on exit, plus administration tax worth 2-3 percent of the fund’s capital.

To persuade investors the business is serious, administrators invest a certain amount in the fund, Popescu said.

The interest for private equity funds did not decrease in Romania and deals could be encouraged if current company owners adjust their evaluation expectations, according to local experts.