What will be your main goals in running the IFC's private equity programme?
The IFC's work over the last four years has been getting its hands around its own private equity portfolio, which is something Teresa [Barger, the former head of the programme] spearheaded. We wanted to make emerging markets private equity a bit more formalised – get it on the map, and get the IFC on the map as the largest investor in these markets – we've got around $1 billion invested in over 120 different funds. We analysed what has gone wrong and what has gone better. For IFC, showing the success of emerging markets is critical. Private equity and venture capital is so badly needed in our markets, that it is an area of focus for us to understand how to do this business better.
What have you identified thus far as crucial factors that lead to success in emerging markets private equity?
The ability to exit has been important. When we invested in a lot of these funds in the 1990s, a lot of the managers were approaching things as if they were in the more developed markets. The assumption was that exits would be IPOs. Well, being IFC, we should have known that it's not quite so easy to do IPOs in emerging markets, but nevertheless we were more hopeful that things would work out better. They didn't. There is a lot of work to be done in developing the capital markets to allow for exits.
What are some of the more common misperceptions about the IFC?
From the private equity folks I've been meeting, for the most part now they do realise that we want our money back and we want a decent return critical for development. If you talk to the average person out there, they know we're part of the World Bank and they may associate that with free or subsidised money. That's a pretty serious misconception. We are developmental, but we think that investing wisely and getting a decent return is developmental.
Having said that, there are some very difficult countries and difficult regions where one has to work, and where a subsidy is required, we will work within a scheme that has a subsidy in it as long as subsidy is properly structured.
If someone from a large pension fund or an endowment asked you whether they should allocate to emerging markets private equity, what would you say?
Oh, absolutely yes. How could I not say that? I've been doing this business forever. I believe that you can make really good money in these markets, but you have to know what you're doing and do it right. You can't deal with these markets like you deal with the US or European markets. They're different. I think that's a mistake many people make, and not just in private equity, but in doing business in emerging markets. You have to adapt.
While you get your arms around your current portfolio, will you be continuing to invest at the same pace as you have in the past?
That's a question a lot of people are asking me. Last year, we committed a little under $200 million. One thing I'd like to make clear is that emerging markets are our business, but I hear some people question the IFC's continued support because we are not investing as much as we have in the past. But we have a huge portfolio that we need to manage. We want to get a grip of our own business while continuing supporting emerging markets in a way that it will be a successful asset class.
Would you be pleased if the IFC one day was no longer the biggest contributor of capital to emerging markets private equity funds?
That would be a great sign of success. As a development institution, we're supposed to work ourselves out of a job.