In this, the December/January double issue of Private Equity International, we focus on a niche topic within private equity: investing in emerging markets.
While it may seem cheeky to refer to the surging economies of Asia, Eastern Europe, Latin America, the Middle East and Africa as constituting a “niche”, this is exactly how emerging markets private equity was regarded in the mainstream of the industry, at least until recently.
It must be remembered that during the late 1990s, the emerging markets were enjoying an earlier bout of popularity among institutional limited partners. Many of the commitments made during that time have not performed well thanks largely to a succession of hiccups in the economies in question. And so some LPs, lacking stick-with-it-ness, wrote off private equity as a useful way to capture growth in the non-developed markets.
This was unfortunate, because the investors that stayed committed, or that entered these regions amid the chaos, have since done so well that the formerly blacklisted emerging markets private equity asset class has been all but reinvented.
In every region we profile in this issue, excitement about the future of private equity is backed up not merely by all the usual compelling demographic statistics, but by real success stories of capital going in and coming back out in multiples.
These stories, as well as knowledge of the broader integration of BRIC, et al, into the global economy, has markedly changed the mood among mainstream private equity firms toward the so-called emerging markets. It used to be that investments beyond one's developed home market were viewed as opportunities that needed to be scrutinised with one eye on the risk/return meter. Investors were anxious about sending dollars to China when the capital could be invested just as well at home, and with lower risk. Now investing at home means investing abroad, such is the increasingly borderless natures of global business. But the skills required for vetting and growing private equity deals in places like China and India are rare indeed.
While it is likely that many of the GPs now springing forth to offer their services in the emerging markets will not ultimately perform well, the difference this time is that LPs will realise that they simply need to look harder to fill this essential and growing niche in the portfolio.
Enjoy the issue,