Romania faces significant investment challenges, including a funding gap and reliance on external financing, which hinder economic growth. Establishing a Fund of Funds could address these issues by diversifying capital allocation, attracting international investments, and fostering economic transformation, as demonstrated by successful models in Poland and Estonia, argues Anca Manitiu, executive member of the board of Agista - the first growth fund in Romania.

Internationally, Funds of Funds (FoFs) have proven to be effective mechanisms for capital allocation and risk management. These vehicles aggregate capital from multiple sources, distributing it across various underlying funds, thereby offering diversification and broadening market access. This collective investment approach brings several strategic advantages: mobilizing domestic capital for investment, attracting international investors through favourable regulatory structures, enhancing local financial expertise via knowledge transfer, and supporting innovative startups and SMEs.

From a systemic point of view, the Fund of Funds format is a sign of industry development, and it should naturally occur when the alternative investment fund number and diversification are high enough, and the investors are diversified in terms of categories and geographically.

CEE remains underdeveloped in alternative investments, capturing only 0.5% of funding value in Europe and 1.7% of total private investments in Europe. This stark contrast between funding levels and the region's rapid economic growth—among the fastest in Europe—underscores an imbalance.

In the last 10 years, CEE has witnessed a quest for multiple solutions, aiming to supplement access to funding for developing markets. One of the initiatives, the Central Europe Fund of Funds (CEFoF), driven by EIF (European Investment Fund) and local administrations covered Austria, Czech Republic, Slovakia, Hungary and Slovenia. Other initiatives from Poland included the foundation of a multilayered fund, acting as a sovereign one, including Fund of Funds components – synergically driven by an investment thesis aimed to improve economic growth for the country.

In the case of CEE, Fund of Funds initiatives did not result from the natural evolution (and often slow) of private investment systems but rather an early adopted tool meant to increase market appeal for international investors, leveraging the region's untapped potential and diversification opportunities.

Examples from neighbouring markets, like Poland and Estonia, provide valuable lessons. Both countries have successfully leveraged Fund of Funds models to overcome traditional investment limitations. For instance, Poland’s PFR Fund of Funds manages a portfolio of over 80 funds and has facilitated more than 900 investments. It was through the PFR that the number of active funds in Poland saw a significant increase.

Similarly, Estonia’s ESF+ funds, with EUR 534 million from the EU, have fostered innovation and growth. These models offer a compelling case for Romania to explore similar mechanisms.

The Alternative Investment Scene in Romania. The Funding Gap

Romania's economic landscape is on the brink of significant transformation. The country's investment ecosystem finds itself at a critical juncture, where untapped opportunities and systemic limitations call for an evolution of the capital deployment formats.

Currently, Romania’s investment environment is dominated by a limited range of actors, with family offices and private individuals controlling around 34% of the available capital. This concentration highlights a deeper challenge—there is a lack of institutional diversity, which impedes the country’s economic dynamism.

Romania's private equity (PE) investment-to-GDP ratio is 0.041%, below the European average but closer to regional peers. A deeper examination, however, reveals structural vulnerabilities. The heavy reliance on external financing and an underdeveloped pension fund sector create a fragile economic foundation, making the system highly susceptible to external economic shocks.

Romania’s funding gap is not just a matter of underinvestment but a significant structural issue. This gap represents a missed opportunity for economic reinvention and the mobilization of innovative capital.

Small and medium-sized enterprises (SMEs) are particularly affected, as traditional banks focus predominantly on large corporations, leaving the entrepreneurial sector underserved. This creates systemic barriers that stifle growth and innovation. Legislative barriers, as well as a lagging investment policy for pension funds, lead to an absence of the most important investor category, significantly delaying the development of the alternative investment system. As a result, the economic ecosystem remains constrained, with untapped potential that could drive substantial change.

Therefore, also looking at the examples of the neighbouring countries, we need to admit that only through using multiple market tools in a smarter, faster way will we be able to advance at the right pace to seize the regional economic opportunities available the economic context has provided so far.

A Fund of Funds could provide a comprehensive approach to capital allocation. Such a mechanism would not only channel resources more efficiently but also foster strategic sector diversification, facilitate knowledge transfer, and attract cross-border investment.

Strategic Framework for Implementation

For Romania to capitalize on the potential of a Fund of Funds, a carefully designed strategy is essential. This involves parallel initiatives, such as building a robust regulatory framework, establishing strong governance protocols, and fostering public-private collaborations. More than just institutional design, the process requires a fundamental shift in how Romania imagines its economic future.

Transformational change is not about incremental steps—it demands bold, visionary strategies that challenge existing paradigms. A Fund of Funds could serve as the catalyst for this economic transformation, enabling Romania to evolve from a passive recipient of foreign capital to an active driver of its own economic destiny.

Conclusion: A Path Toward Economic Renaissance

Ultimately, the question of whether Romania should create a Fund of Funds goes beyond financial innovation. It is about crafting a new economic narrative that reflects Romania’s true potential at the right time. By strategically deploying capital, Romania can overcome structural limitations and create a path for broader socioeconomic development—turning its funding gap into an opportunity for profound economic reinvention.

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