The financial crisis is testing private equity funds' ability to maintain projected yields given that slower economic growth and rising financing costs will dent the profitability of the companies they have invested in.

"The main challenge for private equity funds investing in CEE is the rising competition for deals (. ..)," says Mirela Ene, head of the research department of the European Private Equity and Venture Capital Association (EVCA).

Investment fund representatives believe demand for private equity-type investments is soaring and expect this situation to maintain until banks ease lending conditions,"(...) The dwindling liquidity of other financing sources is considerably boosting demand for capital investments," states Horia Manda, Managing Partner of Access Capital, Investment Manager of the Romanian-American Enterprise Fund and Balkan Accession Fund.

As regards the trend of multiples at which companies are valued, the main private equity players' opinions are mixed. Horia Manda, for instance, says they will fall, making direct impact on both takeovers and exits. His opinion is shared by Mihai Sfintescu, a partner at 3TS Capital Partners investment firm. On the other hand, Cristian Nacu, a partner at Enterprise Investors, says private equity players' yields are less likely to fall.

Last year and earlier this year, the most appealing sectors for investment funds were real estate, constructions, IT, private medical services. In players' opinion, these will also be the most vulnerable in the coming period.

Mihai Sfintescu says the current crisis will, to a greater extent, test private equity funds' capacity to direct the strategy of firms in the portfolio and put together management teams capable of adapting to the situation.

At the same time, one of company managements' objectives will be to slash costs in the coming p