The billion-dollar real estate business has stopped entertaining him. He took a break, but after six months at home, his wife had already begun to drive him back to work. It was said that it was no longer possible to bear with me, one of the founders of the Prime Fund, Dusan Moskaliev, laughs during an interview. His own children then steered him to the future. Thanks to them, the “older dinosaur” understood that ESG is not just a buzzword. The young generation wants to live in a sustainable world, Moskaliev said. In an extensive interview, you will learn about the journey of a student from Pardubice who liked computers and investments, from a bank to one of the largest real estate funds in our country to his own fund focused on technology and a sustainable future.

How does Dušan think about investments? What has Prime Fund invested in? How does the investment symbiosis work? And can ideas and opportunities arise in the Czech investment environment? Not only this you will find out in the first edition of the series of interviews that Roklen will give in collaboration with Prime Fund. Our aim is to bring together the environment of investment funds, their thinking style and to inspire everyone who invests, does business or both.

Dušan, tell us about the start of Prime Fund. How did the fund come about and why?

I am originally a financier. I worked for German multinational entities and financed real estate. Seven years ago, I was at the birth of the now large investment group ZDR Investments, where we financed, bought and built retail parks. Our assets amounted to approximately CZK 8-9 billion, we operated in the Czech Republic, Slovakia, Germany and Austria. That's when I realized my overlap was much greater. I wanted to move on. I sold the group to the remaining partners and suddenly faced a decision like many other investors.

At the age of 45, I had interesting capital, interesting connections and ideas, and I was thinking about what to do. I lasted at home for half a year, playing sports and thinking. But then my wife said to me, “I can't stand you anymore” (laughter). One of the first impulses was that I have two teenage children. Thanks to them, I got more into the buzzword of ESG. I noticed more about how children function, what interests them, what impresses their generation, how they live and how they differ from us older dinosaurs built on hard numbers and formalistic reporting. For the younger generation, ESG is not just a buzzword. They want a green planet and they want to live in a sustainable world.

I was approached by a lot of different investment intermediaries at this stage. I had capital and I met a lot of interesting people. And it was then that I was very interested in Honza Svoboda. For the last 10-12 years, Honza has been very immersed in funds, looking for and investing in various technology innovation companies and that is what interested me. We sat down terribly quickly, until I became his partner in the Prime Fund.

So basically you owe the Prime Fund mainly to your children...

Yes, you can put it that way (laughter). In the first phase, I wanted to be a passive investor. But it excited me in such a way that I thought, “I'm not going to retire, I want to keep working.” I convinced Honza that it makes sense to set up a qualified fund. I know how the market needs to be established and what control mechanisms it works with. Thus, we put together a know-how package and built a fund that has shares in companies that develop, program something or have a specific technological vision. It was, I dare say, unique on the Czech market. No one had dared to do that before.

How is the fund currently doing? What yield are you targeting?

I have to knock it, after half a year of operating purely on the Czech market and in a limited mode, the fund was able to reach investors. We collected over CZK 100 million in the first five months and in the first half year we have appreciated around 8%, so some 15-16% per year. And that's where my partner and I said we were targeting the fund. We are bringing a thing to the market that should not be volatile. With the help of professional financial management of the fund's assets, it should deliver 12-15% per annum to the investor. Alternatively, some extra icing if the stakes in the companies in the portfolio manage to sell well.

We build companies primarily on holding them in high-yield portfolios because we scale and move them by hundreds of percent. Whether it is in turnover, customer or volume of service delivered. Companies, if set up well, can of course become the target of someone larger who will want to buy them. Which, of course, is always a win-win for the fund. The fund shows that it has been able to appreciate investors' money, and in turn has free money to buy and does not need to gain additional investors. And with the first group to establish itself in the fund, in our case it is 80-90 individuals so far, we are trying to move this business forward.

And I digress a little more. With a partner from BDO/Grant Thornton, we set up an investment fund to buy, build and develop a veterinary clinic and hospital. We are trying to buy, or possibly build, veterinary practices in the market that will be comparable in level and scale to the veterinary network in the west. But that goes beyond the Prime Fund. What is common, however, is the professional financial management of such a veterinary asset.

That's a total shift from real estate to vet.

It does. Because you're going to get the real estate. You already have them, it's a simple topic for you. There are about 40 real estate funds operating in the Czech Republic alone. In short, it's not so sexy, but you still have know-how, finances, ideas and thoughts. If you manage to organize them correctly, two very interesting investment solutions can be created in our case. I can see how this is resonating in the market, it's an in-demand asset.

Did you agree with Honza Svoboda at the beginning of the Prime Fund building on everything? Were you clear on what who was going to do?

At our first “tapping “, Honza already had a group of partners and passive investors to look after. It is no secret that one of them was the current minister, Mr. Síkela, whose departure from the government was a certain turning point for Honza. He was paid off and thought, probably even himself, how to proceed, in which guard to move his private non-fund structure further. At that point, I came in and I said, “Honza, the idea is great, but the structure is survivable, let's make a FKI fund.” (FKI is a fund of qualified investors, editor's note). Honza told me that he never wanted to regulate himself, that he didn't want to be in a bureaucratic environment, that's why he didn't do his business. I convinced him that this was the best solution, that I was able to show him just those added values when everything is well done and well managed. Eventually he agreed and we've agreed on everything ever since. I paid off the remaining investors and now we are half and half in the fund, so we have easy decision-making. I deal more with finance, management, regulation, Honza in turn more investor stuff, marketing, but overall he has a lot of overlap into other areas.

What was your start? Already then did the idea of dividing the fund into two parts — private Prime Fund Lab and public Prime Fund SICAV?

Honza was handy in the private fund phase of Prime Fund Lab. We understood that if we work in Prime Fund Lab with our own funds and money, or with the money of a few of our private investors, then if we hit good companies that flourish under your hands, we can no longer secure additional investments.

At Prime Fund Lab, the largest investments are in the order of hundreds of thousands of euros, but on the “A” series you need 50, 70 million crowns and more. We are no longer able to do that from private sources. Therefore, the Prime Fund, which is separated from the Labu Prime Fund, figuratively speaking, is separated from the Prime Fund Labu by a Chinese wall. Everything is regulated further, so that we have clear criteria and that both Honza and I know what awaits us. It has been defined in advance that the FKI has a clear statute, specific statutes, you are checked by a depositary who disburses the money collected from investors on your behalf, and if it finds that the asset you carry meets what you presented to the investors in the statute, it is possible to implement the investment.

It is very important to define which companies are allowed into the fund, when they are allowed there and what will happen to them. And that's actually the idea that we brought. To be regulated, but in an asset that is not controllable.

When we bounce back from Labu's private Prime Fund, what was the first investment you started with a sub-fund? What did your thinking style look like? Did you have a vision of where you wanted the money to go, outside of the ESG concept? Or did you rather look around the Czech environment, where there could be some interesting investment project?

It's both. Honza already had three or four companies invested in his private investment structure. He participated in their further development precisely at the seed funding stage. At the same time, the Czech Republic, regardless of the focus, whether you are dealing with technology or real estate, is terribly small. So as soon as we launched the fund of qualified investors and declared its two “legs”, we were immediately known in the financial and investor world.

Thanks to this, monthly we receive 10, 12, 15 different “cold” offers from the market, which come to us and we look at their quality and potential. We almost never buy majority stakes in companies. We enter them as a minority. We want to have a more diversified portfolio, at the same time we want to leave the drive to the founders to have the majority. But even with that minority of us, we take over the entire financial and HR management. These are things in which founders, with a certain amount of success, are gradually more and more lost, because they no longer develop their business, idea, idea, which fulfills and motivates them. All of a sudden, they have 20, 30, 40 employees and they deal with things they don't want to deal with.

How do you choose startups to invest in?

We assess the company in a classic way — standard due diligence, financial-accounting, tax, we deal with a business plan with them, we look at how the company is set up, etc. This is the idle corporate side, but without which it is impossible to function and grow in the long term. Even if everything works out great, but we don't feel the right chemistry during interviews with the founder or the team, we don't make deals. We are committed to high financial performance, to a long-term relationship and to the transfer of know-how or acquisition of competencies, for which we then guarantee to investors who give us confidence. Therefore, we need to clarify everything with the founders at the beginning.

As for a pool of qualified investors, it is not one that has billions at its disposal and could try 10, 15 or even 100 investments and wait to see if at least two come out that will save everyone else. In this case, we want to make one to two investments a year. That means we have to be absolutely sure what we're doing with the company, where we're taking it and where we're able to get it. Where can we move it valuably, or what else to buy, how to develop it, or how to sell it.

So you don't have, say, an annual plan? We have so much money and we want to invest it so-and-so.

The No. We continuously review the companies, try to narrow the selection down to five companies, which we then look at in more detail. Of the two, we know that they might be considered, so we focus on them and reject the others.

How can you be approached by companies that want to present their project to you that are interested in investing?

Different channels operate with us. The companies we talk to tell each other about us. They reach us even through consulting networks such as Deloitte, KPMG, but despite a regulated structure. That alone is terribly interesting, because most of these are projects that try to raise qualified capital, for example in a bank, but come across as being rejected at that initial stage. And at that point, it is important that the adviser knows where to send such firms. Fortunately, we have such a name that they come to us on their own. And as I mentioned before, Prague and Bohemia are so small that everyone knows what will happen soon (laughter).

Companies can contact us directly via the classic form we have on the website. We also participate in various conferences. Sometimes, however, pitchdeck lands normally in the mail or someone calls if we finance such things and wants to introduce us to something. We also enjoy our spaces to let interesting ideas be presented. Whether junior or senior, the range is really wide.

How do you view the company from an ESG strategy perspective? Can you show your decision making with a specific example?

As part of the Prime Fund Lab, for example, we joined ETW. It is a Czech company founded by two brothers that focuses on recycling waste. When you have a yellow plastic waste bin, plastic bottles are sorted out of it. Everyone can do that. But everything else, which is required as much as 50-60 percent, is just dumped or burned.

European legislation instructs every country that has signed up to sustainability and ESG that it must set clear criteria. What will he do with that waste, when will it end incineration, when it will end up being buried in landfills, how will he be able to recycle it at his national level, etc. There are different solutions around that. The guys at ETW said they wanted to recycle the e-shop envelopes in which the goods go to your home. It's a black-gray envelope that everyone knows and tears badly (laughs). It is a plastic that today only burrows or burns. In doing so, it is used on an industrial scale to cover fields and large areas in cultivation. ETW was enthusiastic about this and managed to assemble a complete line in Nelahozevsi near Prague within two years, with an initial investment of about CZK 40 million, which can recycle this plastic from A to Z. A pile of plastic foils arrives, they clean it and process it into a typical lens, granules, using a technological procedure. These can then be remixed by primary producers into production, which is what they are obliged to do by European legislation.

We were intrigued by this project and bought back part of the company — precisely because we believed in it and saw the added value. The company operates, has a product, sells, the turnover in the year before last year reached 20 million, last year it was already 35. We have delivered financial support from our position and today we are debating whether to take on the financial management model and move the firm further. Their solution is replicable, works, and even makes money. It's kind of a smaller segment that we threw ourselves into, and it's a beautiful demonstration of ESG. In addition, thanks to our further investment in Foxdeli, which is an after-sales marketing platform that helps e-shops increase sales, we also source these plastic envelopes through their clients. At Zalando, for example, these envelopes are collected and transported to us, recycled and put back into circulation. Zalando then advertises that their packaging is 100% recyclable. Even such an overlap can be made by our investments. All thanks to the mutual cooperation of our two companies.

So do you base your investments on the fact that you want some sort of symbiosis between them?

It's not the primary intent, but in this situation it came about that way.

Are you not afraid that you will suddenly run out of ideas or investment tips in that small Czech pond?

I confess that we are not afraid. By making two or three investments a year and having investments in a private branch in Prime Fund Lab, we already know about potential opportunities a year or even a year and a half ahead. In addition, we have experience of how imaginative companies are. Various spin-offs, offshoots arise. It may be that what was the main thing suddenly becomes a background, because something better and more modern has emerged along the way. Gradually, everything will grow like a bushy tree. In addition to financial and organizational management, it is up to us to show the founders: “Hey, we still have these companies in our portfolio, you can help each other with them.” And suddenly we are moving forward by leaps and bounds.

How long does such a building process take?

We said that we want to acquire companies within three to five years at the earliest, in a diversified way. Something more industrial, like ETW, something downright technological like Foxdeli, other more established ones that earn well and hold some performance in the fund, and finally companies ready to scale and then sell. We would like to have 12 to 14 companies in the portfolio within five years. We will sell some of them and there will certainly be other opportunities in their place.

Do you have an investment formula defined for the private Prime Fund Lab? For example, do we want to invest purely in start-ups, or do we want already established ones?

In the case of Prime Fund Lab, where there are younger companies and projects, we do not invest in full startups. We are not angel investors. The company needs to have a product that works, but only in the pilot phase. We have to be sure that there are a few customers in the market or that there is a case study and the market wants the product. Plus we have to see what is the possibility of further growth outside the Czech Republic and Slovakia. We are interested in things that can be worked out and which, thanks to our capital, if we subsequently move them to a more mature fund, we will be able to get to Europe. As far as ESG sustainability is concerned, innovation is what we are particularly interested in.

For example, Foxdeli saves one to two car trips thanks to postmarketing and tracking orders within logistics. According to the figures, up to 4% of shipments are not delivered. Foxdeli's more precise targeting can make up to 90% of shipments delivered the first time out of the undelivered 4%. Other marketing messages, information about promotions, everything based on what you ordered can be attached to the tracking email about the delivered parcel. If you only get a marketing email with some advertising action, you'll probably delete it straight away. We have an openness of 115% of emails, which means that some customers return to them repeatedly. We tell e-Shopists, put our solution in your system and for 1 CZK you get 3 CZK in that you have a higher turnover, and you save even more nature.

But Foxdeli services have also been picking up gradually. For example, I consult this at home with children. I ask, “Why are you using it like this?” This is the best feedback, from young people aged 15-20 years. It's a generation that's more connected online, doesn't want to solve physical errands, paper things, wants to have more free time to themselves. This is how it works and will work. We are trying to come up with solutions that will contribute to this.

What are your criteria for the companies you are looking for in the Prime Fund public fund portfolio?

The moment we consider entering through a regulated fund, these are larger investments. At least CZK 50 million will be settled there. At that point, the size of the company has already been pushed back a year, maybe a year and a half further. It means it already has more customers, you have feedback, it generates sales, someone even profits, and it has a growing curve. For the investor, the magic of going into a regulated structure on Prime Fund lies in the fact that history will be made of establishing the firm through the Prime Fund Lab. As soon as the progress is good and the company expects strong growth within three to four years, Prime Fund joins. And that's where you earn investors 15% per year. The company then reaches a point where it is already growing less. For example, it will reach the stage of a classic industrial company, which grows by 5-10% per year. This is no longer so attractive for us, because every experienced investor earns 10% on his own.

Has there ever been a situation where you invested in a company and it didn't work out badly? Did any fuckup happen to you? How to proceed in this case?

Not yet. It may happen that some investment does not develop as you thought at the beginning. Then it's just about symbiosis and mutual chemistry. You need to let the founders know in advance so that they are not afraid to come to you and say what is not working, what they are wrong about. We will then look at it together and help them. For example, is there a problem with marketing? We explore, find out who we can turn to, what new markets we can go to, and we look for solutions. We can get the company back in the game. I don't expect us to be able to invest in a company that will die and be zero in a few years. The magic of a regulated fund is that when something like this happens and a firm doesn't perform as well as I expected, or spoils my performance, it's in that diversification package with three, four others dragging it along.

If I don't get hit in the Prime Fund Lab, I've burned my money. Next time I will learn and no one knows. In a regulated fund, every move is seen by an auditor. He sees all the firms you have, he sees their valuations, he asks you why the valuation went up, why he went down, he sees the economic results and he asks if it's OK. This ensures that the performance of the fund is right for the investor. Or as close as possible to what it should be, so that no one is harmed.

Of course, I do not wish it, but it can happen to us that we do not make the right choice. But by what companies we select and then manage them financially, we have a very good overview of their fitness. Some companies are very close to us (Foxdeli shares offices with us in Karlín, Prague), we see each other every week at meetings, daily over coffee, and we can therefore eliminate any failure in time and much earlier. We are drawn into the happening and it's enjoyable. Thanks to this, we are able to help much faster than if you are just an investor who distributes the money raised, closes the fund for eight years and waits to see what happens, and speculates.

Do you want to invest only in the Czech Republic?

Our base will always be in the Czech Republic. The Prime Fund is not built to be some kind of multinational and large. In the Czech Republic, we finance in crowns and we also make investments in crowns. If you wanted to enter a foreign market, that means a much greater financial need. At that point, you need to open a fundraising channel in the west. And there is no one waiting for you. We are aiming for the Prime Fund somewhere between one billion and two billion crowns. That means 40-60 million euros, which is a bigger private investor in the west. We don't have that ambition. However, projects from Eastern Europe or even from Central Europe are turning to us. Well, then yes. We are able to finance a foreign project, but from the Czech Republic.

How many companies currently operate under a private fund and how many under a regulated one?

Under the private there are three companies and two in the regulated fund. The entire group now has five companies. The Prime Fund has been operating as a regulated entity since the summer of 2023. Prime Fund Lab with Honza Svoboda's history has been operating reliably for several years.

So far, we have mainly talked about investments in the ESG segment. You started out in real estate. Real estate and ESG don't quite go together. If any company that does the real estate business comes in, does it have the door closed at your place?

He does. We would not 100% invest in real estate. Maybe if we had to buy a property with some company. We would certainly fund them outside the fund and thus put the risks aside. But the fund's strategy is to focus on stakes in companies, not real estate.

Where do you get investment inspiration? How much do you need to understand the business you are investing in?

Even though real estate stopped entertaining me, anyway the first thing was to buy real estate (laughs). We bought the space where we sit now to move all the businesses into our own if possible. We didn't want to be dependent on the market, on what was going to happen. And then, whether it's Veteran or Prime Fund, you always have to understand their business anyway. I'm not going into something I don't know exactly what it's about. How many times do I ask stupid questions when something doesn't make sense to me. For example, in the case of IT technologies, I want to know its essence and translate it into an understandable form. Then I will discuss it at home with my children, with people from the industry, with investors and with consultants from an established consulting firm, because many times they will find interesting opportunities that I can ask about. And if even I as an industry professional see the added value in it and the sense it makes for the investors I represent as well, I'm going for it.

How did you actually get to invest? And what was your journey from real estate to technology and ESG?

I'm from Pardubice. I graduated from university in Hradec Králové, where a new Faculty of Information Technology Management was opened at that time. I enjoyed computers and information technology, and we also had an extension into economics. It was a whole new field. By the third year, though, I was getting bored. At that time, the stock exchange and the RM system opened. At the time, I thought that was what I was interested in. I got a brokerage license, I was even perhaps one of the first in the republic. Then I started trading stocks at school for two securities dealers, and along with that I went to harvest apples in the north of Italy during the holidays, where German was also spoken.

When I finished college, I went to show up at a bank, specifically Vereinsbank saying that I enjoy economics and investing. I knew German, so they sent me straight to Germany, where they raised me. At the time, banks were riding a wave of real estate investments. Multinational chains came to us, all building, investing and bringing know-how.
After me, a real estate group from the Deutsche Bank group jumped right after me, and subsequently Raiffeisenbank. Gradually, I worked my way up to an executive position, servicing real estate projects for the Czech Republic and Slovakia.

I remember one of my big clients, who used to build Bill's or Penny Market here, came to me in a year and paid off my loan. I didn't believe he could pay it off so quickly. It wasn't until I understood the retail park had sold to some fund. Then I studied how a real estate investment fund works. Back then, as a financier, I was counting on borrowing for 10 to 15 years, during which repayments have to come out. But then an investment fund comes in and pays you twice as much for the project. I thought it wouldn't come back to the fund in 30 years. Finally, I studied the infinity of an investment fund, if you have a reasonable portfolio and yield. I went to the developer and I tell him if it wouldn't be worth doing a real estate fund. The response was positive. I went to see a lawyer who also liked the idea and wanted to be a partner straight away. This is how ZDR — Zdeněk, Dušan, Radek — real estate funds were formed, where we were suddenly worth CZK 8.6 billion in assets in four years. Of that, four to five billion from banks, four billion from investors, and it was all in retail parks. In four years we have managed 51 projects. Monthly we were able to buy a retail park or put it in the fund when it was completed. At that time, we were unique, so investment money to us consisted of a billion a year, absolutely without any problems.

But then, as a banker, you see that inflation starts to rise and money starts to become more expensive. And it is precisely without cheap real estate money that the fund does not work. In the end, it turned out that we in the fund did not agree on its direction. I stepped down, sold a stake, took a half-year break, and now here I am -- in Prime Fund.

One last question: Would you ever go back to the corporate environment?

The No. (chuckles...)

I had a hunch. Thanks for the interview!

Ing. Dusan Moskaliev | Founding partner of the investment group Prime Fund

Expert recognized by the Czech National Bank to perform functions in financial institutions. He has been in banking and corporate financial management for over 20 years. He obtained a brokerage license for securities trades as early as 1995. He worked for Vereinsbank and Deutsche Bank. He has held leading positions in the Czech and Slovak companies of the Raiffeisenlandesbank Oberösterreich group. He was a member of the board of directors of the Savings Cooperative. He co-founded the real estate fund group ZDR Investments and the first veterinary investment fund in the Czech Republic First Veterinary Fund Central Europe SICAV a.s.

Source: Roklen, Prime Fund

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