The market's reaction

?There is clearly a value for research like this. In the emerging markets, private equity is an immature asset class where all the lessons have not yet been absorbed and put into common practice. The emerging markets private equity industry has changed dramatically since the early 1990s and the early experience was often less integrated with developed country expertise and legal technology. Local legislative and regulatory structures do impose limitations on investors – often it is necessary to synthesise complex securities that a US lawyer could simply pull off the shelf. That can be a bigger impediment to private equity investment than the rule of law, as investors usually go in with a degree of suspicion of the legal system and contractual enforceability anyway. I also agree with the observations on how the role of the board to enforce contractual rights or serve as a monitoring mechanism can vary in civil and common law countries.?

Natalie Jaresko, president and CEO, Western NIS Enterprise Fund. Jaresko runs a private company that manages US government funded private equity investments in the Ukraine and Moldavia.

?I think this study will help to identify the different characteristics of transitional economies compared to more developed ones. It will also be useful with policy makers in transitional countries to push for changes that could make the private equity industry more vibrant. Econometric data like that found in the study's appendices works well with governments and policy makers, particularly in places like the former Soviet Union?they like to see conclusions based on fact and data rather than on judgment and perspective. I think it's important, however, not to frighten potential fund investors away from the private equity industry, thinking they can wait for things to improve. The only way that private equity can continue to develop positively in these parts of the world is if more money is put in and there are more players to work to improve the policy environment. We recently commissioned an economic impact study in the Ukraine and Moldavia that showed that every dollar invested by us is worth eight dollars to the regional economy. The regional authorities were shocked when they saw the value being created in a short period of time?they really got a sense of why private equity is an important part of the financial market.?

Francis Skrobiszewski, managing director, Hungarian Innovative Technlogies Fund. Skrobiszewski's firm is focused on emerging technologies in Hungary ? particularly biotechnology. The fund was launched in 1999 by the Hungarian-American Enterprise Fund to provide early-stage venture capital to Hungarian entrepreneurs.

In emerging markets you may have lots of rules and regulations but the question is how are they enforced? Contractual provisions may be toothless because the legal system is ill-defined. That can make a big difference on the choice to invest and can impact on potential returns – having to enforce property rights eats up time and energy. Unless you can come to enforceable conclusions quickly, investors may be more reluctant to go into a region. Research like this will be most useful on a policy level. It can help local venture capital associations to lobby for reform and changes in laws that facilitate the attraction of not only investment, but also the discipline and oversight that come with venture capital. It is helpful to try and understand why the US and the UK attract capital in the way they do and what may be the problems in these other countries. It's a piecemeal process – nothing will happen overnight but you may be able to have an impact on even a narrow niche as the venture capital associations pick up on the issues.?

&#42 Readers can view the results of the study so far online at: http://wpweb2k.gsia.cmu.edu/wfa/wfapdf/LDCPEDealsver3.pdf