Investor commitments to emerging markets are expected to decline in the next one to two years, due to conditions brought about by the coronavirus pandemic, political developments and institutional risk aversion, according to EMPEA’s latest global LP survey.
A medium-term recovery, however, is anticipated as investors expect to increase investments in three to five years, the survey found.
Private Equity International caught up with Cate Ambrose, chief executive of the Emerging Markets Private Equity Association, to find out how she is positioning the association in a post-covid world.
What themes are driving EMPEA’S near-term plans?
First is a focus on environmental sustainability and social impact. From renewable energy to smart buildings and retail, so many of the opportunities driving investments in emerging markets are tightly linked to social impact and sustainable development.
Aside from strong returns, the environmental sustainability and social impact are another set of outcomes that are becoming increasingly important to LPs.
Second, we are making sure we are positioning the organisation around the important opportunity for technology and innovation outside of the US. The vision for EMPEA is to grow a venture capital/tech content platform to cover mainly cross-border tech transactions, from early stage to growth equity and beyond across emerging markets. Technology has transformed traditional businesses and we see a need to highlight that growth in markets like India, South-east Asia, Latin America and Africa.
Third is to deepen our footprint in Asia, which is geographically the most challenging market to establish a local presence.
I want the organisation to be closer to the markets, investors and managers we are covering. My hope, although this might be more challenging with covid-19, is to be much more plugged into the local private capital ecosystems across our market.
What are you seeing in Asia?
Asia, notably China and India, has been a strong market for private equity and venture capital investing.
China is incredibly complicated right now, but it has over the years been a successful destination for global LPs.
I think the scenario around receiving Chinese capital is less about traditional LP commitments and more about whether Chinese tech giants will continue to acquire companies in other parts of the world, leading to exits for local managers. There is enormous uncertainty on how that will play out.
We are also living in a world of political isolationism, at a time when governments are not speaking to each other and there is so much introspection and shutting of borders.
Even though large corporations and investors might be thinking about their position in China or Hong Kong and all the complexity surrounding those markets right now, private capital doesn’t stop. Private capital investors are not governments. They own companies and they are often at the forefront of taking risk and positioning themselves for growth. Geopolitics and the relationship between US and China are concerns, but it’s not a wholesale stop.
What’s different about investing in emerging markets today?
Looking back 10 to 15 years ago to the initial premise of emerging markets PE, investors were targeting fast growing economies, rising domestic consumption and an expanding middle class.
That premise has evolved and now has accelerated with covid-19. You can no longer rely exclusively on the faster macro and consumption growth in emerging markets. It’s not necessarily a singular thesis for investing today.
What you do see are specific opportunities in growing sectors. There’s a more targeted and specific approach in terms of the opportunities in these markets. Investors, for example, are focused on sector strategies like education, financial services/fintech, energy/renewable energy, infrastructure, and the impact of their investments as well as innovation coming from local entrepreneurs.
I’m hoping EMPEA might be a force for influencing some of the changes in our industry – to drive greater sustainability across populations in different parts of the world going forward.
Cate Ambrose is chief executive officer and a board member of EMPEA. Prior to joining the association in October 2019, she served as the president and executive director of the Association for Private Capital Investment in Latin America.