UTIMCO and other LPs on emerging markets

Endowments and pension funds from Denmark, Australia, Texas and New York talked about their preferred developing markets in a panel discussion at the Global Private Equity Conference in Washington DC on Tuesday. Here are some of the key takeaways.

Macro stability is important…

Richard Rincón, director of emerging markets investments at UTIMCO – the University of Texas System’s endowment fund – pointed to China, Brazil, South Africa and India as looking attractive at the moment.

“We tactically time with co-investments so we take a long-term view right now,” said Rincón, “I can’t call the bottom of the cycle, but I think the long-term prospects are interesting. Politically, I think these are a lot more stable – Brazil, specifically.”

…as are trust and the rule of law

“In general, I have a preference for well-functioning democratic countries, where there’s a good rule of law,” said Soren Thinggaard Hansen, head of private equity at Industriens Pension in Denmark. “It’s not always that it’s efficient. But I would say we need to establish a number of different things that need to be in place before we invest there.”

“But I think in terms also of having a lot of trust with the managers. India is one country where, probably contrarian to a lot of other people, we feel that we trust our managers that we have on the ground there. They don’t just tell us what we want to hear and go do what they do,” he added.

Gains are more valuable when they have been realised

“In China, while the returns on paper look better, I would challenge to many people to claim to have very good DPIs [distributed to paid ins],” said Brooke Jones, director of investments at Carnegie Corporation in New York. “In India, it’s quite the opposite, there isn’t the same on paper return, but I’d see more capital on that from our relationships.”

The Australia-China connection is strong

Marcus Simpson, head of global private capital at QIC, a Queensland pension fund with more than A$80 billion ($60 billion; €51 billion) of assets under management, said that investing in China makes sense because it’s Australia’s largest trading partner.

“We have a lot of Chinese people looking to do business in Australia, looking for partners and a lot of Australian companies looking to grow outside of Australia,” he said.

Some LPs are keeping the faith

“I do think [emerging markets] will continue to surprise many investors, even though the foreign exchange volatility of things” are concerns, Rincón said. “It will be rocky, but the fundamentals are exciting across the board.”