Emerging markets private equity is in a fragile place right now.
The global financial meltdown has caused many limited partners to hoard what cash they have, and become very choosey in making commitments to investment managers.
LPs have options, and some options that may seem more attractive than emerging markets, like distressed debt, and secondaries, areas that are full of activity and promise in the down market. The times ahead are going to be challenging, and put to test everyone and anyone who gets excited about investments in developing countries.
The economic downturn has hurt exports in many emerging nations, which will lead to the growth of domestic markets in those countries. Emerging markets private equity firms are poised to capitalise on that opportunity, but to truly benefit, the firms will have to win over the communities in which they invest.
Balancing a more socially friendly stance, paying attention to all stakeholder concerns and working to achieve high returns for investors will put firms in an “impossible position”, Arnab Banerji, non-executive chairman of CDC Group, said at a recent conference.
But, as with other segments of the private equity market, socially responsible investing will have to be a main focus going forward for firms to maintain their relationships with the countries where they invest. Not doing so may seriously jeopardise their deal pipelines or alienate investors.