EU-Armenia SME Fund, managed by Amber Capital, targets more equity investments in Armenian companies

• 12 investments across seven strategic sectors of the Armenian economy
• “Smart money” paving the way for sustainable growth in portfolio companies
• Attractive pipeline of opportunities to support further investments

Private equity is an important constituent of a well-diversified economy, yet it is an asset class that remained relatively untapped in Armenia. EU-Armenia SME Fund, managed by Amber Capital and supported by the EU and EBRD, was launched in 2020 to address this gap in the market and provide an alternative source of funding to businesses to support their growth and expansion efforts. Since inception, the investment team of the Fund have witnessed an impressive growth in the number of deals concluded and the amount of capital invested in Armenian companies - a very positive sign and a testament that the economy has matured enough to absorb significant volumes of equity capital.

At a total size of USD 60 million, the Fund is backed by a well-diversified investor base, both public and private, with 2/3 of commitments coming from international investors. The investment team of Amber Capital is also well invested in the Fund, in full alignment with all other investors. The Fund’s entire investable capital is designed solely for SMEs, using the EU definition, that operate primarily in Armenia. Therefore, the Fund has evolved into a unique vehicle for channelling both foreign and local capital into the most underinvested segments of the country’s economy.

The Fund’s mission is to support the development of Armenian companies by not only providing capital, but also facilitating transformation of business culture and introduction of best-in-class ESG standards. In this context, the investment team is determined to lead by example: the Fund was incorporated in Luxembourg, a tried and tested jurisdiction for investment funds with appropriate controls over the investment process, such as having a third-party fund administrator with independent presence in the Fund’s Investment Committee. Additionally, other best practices are embedded in the Fund’s processes, including being audited by a member of the Big 4 professional services firm and regular reporting to the Fund’s Advisory Committee - a platform where the investors of the Fund can actively monitor its performance.

The mandate of the Fund is to make equity investments in Armenian SMEs with the objective of achieving long-term capital growth and obtaining appropriate risk adjusted returns. While the Fund is a commercial enterprise, the sectors in which investments have been made also reflect strategic priorities of Armenia. Such sectors include renewable energy, leading to energy independence and reduced carbon footprint, food processing, enabling better food security, and healthcare, amongst others.

Adoption of high ESG standards in portfolio companies is one of the key tools to achieve the Fund’s objective of securing long-term capital growth. Such standards include introduction of best practices in corporate governance, creation of a board of directors, strengthening the finance function by recruiting experienced professionals, commissioning external audit from international service providers, codifying internal policies and procedures, setting diversity and inclusion goals and monitoring them as well as assessing and reducing the environmental impact of the portfolio. As a result, the companies are enabled to set strategy by making more informed decisions, based on reliable data and facilitated by sustainable practices.

On macro level, Armenia has been enjoying robust GDP growth rates and a tame inflationary environment over the past years, enhancing the investment profile of the country. The capital markets also have been more active than ever. With an increasing number of companies issuing bonds and undergoing IPOs, the investment team is optimistic about the prospects of eventual listing of some of the Fund’s portfolio companies.

"The EU-Armenia SME Fund represents a significant step forward in our economic partnership with Armenia. By providing vital equity capital to Armenian SMEs, this fund is not only fostering economic growth but also promoting the adoption of best practices in corporate governance and sustainability. We're pleased to see the fund's positive impact across strategic sectors of the Armenian economy, from renewable energy to healthcare. This initiative aligns perfectly with EU’s Resilience and Growth Plan for Armenia, which will invest in making the Armenian economy and society more robust and resilient to shocks. And it demonstrates our commitment to supporting Armenia's economic development and its better integration into the global economy." said the Ambassador Vassilis Maragos, Head of the European Union Delegation to Armenia.

 “EBRD is delighted to see such successful results in our long partnership. Since the launch of this programme the Amber Capital supported several private sector players in Armenia, that has huge entrepreneurial potential. We are also grateful to our long-standing partner, the EU, for the strong support of this project. Private equity capital is an important niche in the financing market that can help businesses to attract alternative source of funding and provide growth support.  We are delighted to be part of this partnership.” said George Akhalkatsi, EBRD Head of Yerevan office.

Anushavan Simonyan, Managing Director of Amber Capital Armenia, concludes: “We are following our investment mandate closely and are very encouraged with the results achieved to date. The pace of the investments is growing and we are projecting to close a number of additional deals by the end of the year. The Armenian economy presents many attractive opportunities for investors and we hope to see more private equity activities in the coming years