PEI EM Forum: Africa trumps other markets

Private equity professionals believe Africa has the most attractive emerging market opportunities, according to an informal poll conducted at Private Equity International’s Emerging Markets Forum in London Tuesday.

“Africa is a new continent being discovered by many of us,” said Brookfield managing partner Luiz Maia during a panel discussion. “There are plenty of opportunities there.”

While Africa attracted more votes from delegates than Latin America, China and India in the poll, one caveat about investing in the continent pertained to government involvement with portfolio companies.

“Try to work with companies that have very little influence from the government, because governments change,” said Pontefract Global Strategies managing partner James Seymour.

“When I was working in the Philippines we had a policy that we would not invest in companies that had any kind of government affiliation. I think that was a fairly good rule. Egypt is another example of a country which I think has tremendous private equity investment opportunities. Things are still unstable there, but businesses have been running in Egypt for a long time and they will continue to run as good businesses through political changes.”

Seymour added that other emerging market countries beyond Brazil, Russia, India and China (BRICs) are ripe for private equity investment, despite inherent political risks.

“We should be talking more about places like Indonesia, Turkey, Egypt and Nigeria. The risks are higher, but that in my view means don’t not invest there, just be prudent. You’re investing for the long term trend. Nigeria has tremendous risk but tremendous opportunities. But to say ‘no’ now means you could miss out.”

Seymour also rebuffed the claim that only development finance institutions were investing in non-BRIC countries.

“There are a number of firms that have been around for some time – whether it be ECP or Ethos or Brait or Actis – that are well beyond taking money just from the DFIs,” he said. “Endowments and foundations are investing in them. Sovereign wealth funds are investing in them. It’s going to be DFIs initially, undoubtedly, but in Africa there are a bunch [of firms].”

While the issue of which emerging market countries held the most attractive opportunities dominated the majority of the panel discussion, another panelist highlighted the role of technology in identifying pockets of opportunity.

“When we look at the world of opportunities right now, what we see in a lot of these emerging markets is the ability on the part of companies to use technology to leapfrog essentially where a developed country is,” said director at Silver Lake, Stephen Evans.

In another poll given to the same group of delegates, 51 percent expected the pace of private equity investment in emerging markets over the next 12 months to be “a little below pre-crisis levels” while 23 percent voted for “above pre-crisis levels” and 21 percent chose “a lot below pre-crisis levels”.