Posted on 18 April 2022

Europe’s PE Investing: A Different World

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Featuring Karolina Drozdowska from Innova Capital


To say that the private equity market is experiencing a boom seems like an understatement. During the first half of 2020, private equity assets under management worldwide reached $4.5 trillion, according to the US Securities and Exchange Commission. Today, even with higher interest rates looming, the upward trend shows no signs of abating. By 2025, global consultant Deloitte predicts PE assets under management should reach $5.8 trillion.

Growth isn’t the only thing investors are chasing, though.

In the EU, at least, the private equity environment isn’t just about money. Although it may not always be obvious to the casual observer, non-financial factors often matter even more, says Karolina Drozdowska, General Counsel at the private equity firm Innova Capital. She provides legal advice throughout the entire investment period, including fundraising processes, compliance, and exit and entries to deals.

Today, people are increasingly interested in putting their money where their values are, she said. As a result, it’s not uncommon for a company’s environmental, social, and governance (ESG) track record to figure prominently into investment decision-making. That includes performance in terms of gender, ethnics, and cultural diversity, which is one area where Innova Capital’s portfolio companies are already advanced.

The emphasis on these issues came about faster than anyone could have imagined even three or four years ago. As Drozdowska put it, suddenly, everyone is talking about ESG.

“We see that ESG is one of the most important parts of the investment process and the value creation plan for both our investors and the entities to whom we are selling our portfolio companies,” she said. “I think that investors are incorporating the ESG data into their investment process to gain a fuller knowledge or understanding of the companies where they invest.”

One reason ESG information has become more useful is that it’s become more usable. Gone are the days when a company could simply check off a series of boxes and call their ESG reporting complete. Instead, there’s more transparency and disclosure, in no small part because activism-oriented investors demanded it.

“People dig and they ask questions, and they really understand what they’re talking about,” Drozdowska said.

“It’s also interesting to see how ESG considerations change someone’s approach to any given investment,” she added. “There are more and more cases where, even though a deal is really great, some investors may shy away just for the ESG reasons.”

That never used to happen, she said.

ESG topics are increasingly changing the entire investment perspective. What once was considered “nice to have” is now obligatory and simply a “must have.”

Regulatory pressures

Of course, not all of the ESG pressure is coming from prospective investors. Rules that compel companies to incorporate ESG data into financial reports are in the pipeline — and they represent just one of the regulatory pressures private equity markets face. Trying to stay current on constantly evolving regulations is enough to keep compliance teams up at night.

“From the EU perspective, at least, one thing that’s difficult for us is how quickly the regulatory environment changes,” Drozdowska said. “The members of our compliance team are constantly educating themselves to ensure they understand all the intricacies of each new rule.”

A good example right now are the new rules regarding the marketing of emerging alternative investment funds. They’re so new, in fact, that there’s no practical knowledge about them or how they will affect the marketing of these funds.

“The rules affect what you can say and what you can’t, the notifications you have to provide to be able to market in certain jurisdictions, who and how many people in the organisation can market the product, and who can’t,” Drozdowska said. “We are being very, very careful to market the product in a prudent way, without actually being able to predict what the enforcement of the rules will be like.”

As if those issues weren’t challenging enough, marketing financial products in the EU means understanding and fulfilling the obligations of multiple jurisdictions, some strict, some less so.

There are also differences in the level of support each nation’s regulator provides. In Luxembourg, for example, the regulator frequently provides guidance — something not seen everywhere.

As for meeting the technical requirements outside the EU boundaries, that adds even another layer of complexity. Marketing in Switzerland, for example, requires affiliating with an ombudsman.

“Comparing our activities and the way we worked just a few years ago, it’s a completely different world from our perspective,” Drozdowska said.

Significant transitions

Drozdowska knows a thing or two about different worlds: Before joining Innova Capital, she spent a decade at the Warsaw law firm Greenberg Traurig, where she focused on M&A transactions in the financial sector.

She says the transition from being part of a legal team to being the only lawyer in an organisation was somewhat daunting at first. She missed having other lawyers to consult with and it took some time to adjust to the private equity firm’s more “practical approach.”

“As an external advisor, you are always providing a number of disclaimers,” she said. “Here, the team expected a different kind of advice and no disclaimers. You make a decision and things flow from there. You see the effects of your decisions right away, which is nice. “

Despite the initial adjustment period, Drozdowska said, it wasn’t long before she felt like an important member of the team, whose judgments were trusted by her colleagues.

“It was challenging at first but now, I can’t imagine going back,” she added.


Innova Capital is an independent private equity firm, operating in Central and Eastern Europe since 1994. To date, Innova Capital has invested nearly €1 billion in nearly 60 companies located in 10 countries of the region. Innova was also named Management Company of the Year 2020 by the Polish Private Equity Association (PSIK).


This article was originally published in the Sensus Magazine. Click the image to flip through our most recent issue or browse through our previous editions of the magazine.