North Goes East -- Case Study Case

North Goes East -- Case Study Case Overview and Important Items The North Goes East Case documents a decision for the North Asset Management group to diversify the investments that it can offer its clients. One of the ideas that it had was to start a property fund in which the company's clients could invest in real estate through a hedge fund type arrangement. One of the most promising property markets in the world was identified to be in the Central and Eastern Europe (CEE) markets.

As countries in this region have been either newly introduced to the European Union or on a path to joining the EU, there has been significant economic growth driven by foreign investment. Whereas companies in Eastern Europe were growing at a few percentage points in regards to gross domestic product (GDP) per year, many of the countries in Eastern Europe were growing substantially faster.

Much of this growth was driven by foreign investment that had entered the previously untapped markets through the trade liberalization deals that were terms of the European Union. However, at the same time, there were still high levels of political instability in the CEE as well as high levels of corruption and other social issues. Therefore, for investors to accept the risks associated with the CEE they often required substantial returns on their investment.

In the case of North Asset Management, this group set the bar at a twenty percent internal rate of return for their property investments. Important Case Facts In May of 2004, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia had joined the EU. At the time of the case, Romania and Bulgaria were undergoing the application process.

In order to be admitted to the EU, countries had to agree to and abide by many economic and political mandates including such important items as forming a secular democracy as well establishing a market economy. As a result of the countries embracing capitalism, foreign investment helped fuel a game of "catch up" and these economies grew comparatively quickly on average. Although the CEE region had tremendous growth opportunities there were still many threats such as labor migration, inflation, political instability, corruption, etc.

SWOT Strengths Talented Management Successful Parent Company Large Amount of Capital Available Weaknesses Limited Experience in CEE Limited Experience in a Property Fund Language and Cultural Obstacles Opportunities Find an Ideal First Property Investment Meet the 20% IRR Benchmark Expand to Other Secondary Cities Threats Political Instability and Corruption Eurozone Instability Cultural and Language Barriers Investment Opportunities Retail Park in Romania Low Unemployment Good Infrastructure Natural Resources Under Retailed Logistics Platforms in Bulgaria, Hungary, and Romania High Margins Stabile Industry Local Market Instability Retail Project in Hungary Good Infrastructure Specialized Industries Close By Redevelopment Opportunities Recommendations For the managers of the property fund, the first investment was critical as it would set the stage for all further investments.

After literally considering hundreds of different opportunities and different projects, the three finalists were chosen and now the decision rest between which one showed the most promise as an initial investment. Two of the three opportunities were designed around the retail industry in which the managers had experience in. Developing a logistics network is a complicated endeavor that requires significant knowledge of the industry.

This was not necessarily in line with the management's level of expertise and experience and they would have to rely on outside consultants for much of the development of this project. Since this is the fund's investment project and represents an important milestone, then the logistics project.