EMPEA 2018: Exits remain elusive in frontier markets

A former EBRD executive told EMPEA’s annual private equity conference that development finance institutions are more concerned than ever about ‘exitability.’

For those investing in frontier markets, navigating a successful realisation to an investment can be a stressful prospect.

“How the hell do we get out of this? Where do we go? What industry can we actually invest in?” asked Phil Bennett, a long-time banker who recently retired as vice president and head of client services at the European Bank for Reconstruction and Development.

“In frontier markets, we have to be more concerned than ever about the word we use, which is not an English word: ‘exitability’,” said Bennett, speaking at the 20th Global Private Equity Conference sponsored by the International Finance Corporation and EMPEA in Washington, DC on Tuesday.

The difficulty in exiting investments has long deterred private capital from breaking ground in young markets. Instead, this has been left to the development finance institutions, the state-linked investors with a mandate to stimulate those markets.

The EBRD has invested over €115 billion in more than 5,000 projects since its founding in 1991, according to its website. The bank has 20 percent of its assets in private equity, said Bennet, and it is active in more than 30 countries, including frontier markets such as to Tajikistan and Belarus. It has backed 120 funds, more than half of which have been first-timers, and worked alongside 1,750 LPs on equity funds, often as the anchor investor to get those funds started, he added.

While exits remain a considerable issue in frontier market PE investment, the established private equity fund structure is not in question, according to Stephanie von Friedeburg, chief operating officer of the International Finance Corporation, a DFI unit of the World Bank that has committed around $6 billion to 300 funds.

“We’ve had very good success in the LP-GP structure, and I don’t necessarily think that we are taking a step back and asking ourselves whether or not we need to make fundamental changes in the structure,” von Friedeburg said.