Emerging Market Private Equity: The Asset Class’ Saviour?
The IFC’s 14th annual global private equity conference in association with EMPEA could not have fallen at a more timely moment. Stepping off the plane onto American soil, it was hard to avoid the fact that private equity was the topic du jour.
Following the airing of Obama’s ad attacking Mitt Romney’s background as a private equity executive, CNN, Fox News and CNBC were all devoting hours of airtime to analysis of the topic. Whatever the future backlash might be, private equity was branded as having a “business model of loading the [portfolio] company up with debt, in order to extract immediate profits for yourself out of it, and then ensuring the failure of the company later on”.
How refreshing then, to join the 850 delegates hailing from 50 countries who gathered to celebrate the asset class’ impact in the emerging markets. With a distinct lack of debt financing available (in most cases) to the portfolio companies represented at this event, the emphasis was instead on the positive impact that growth equity investing can have on a company, without the need for high leveraging.
Couple this with the fact that in these markets, ‘doing good’ often also serves to improve returns for investors. Research has shown that investment managers with strong environmental, social and governance structures in place can overcome the risks posed by weaker regulatory and legal frameworks, and obtain the best performance. Keynoting at the conference, and later writing for Huffington Post, Lars Thunnell, Executive Vice President and CEO of IFC – World Bank Group opined, “Whether you care about the impacts your investments have on the communities where you invest, want to manage risks, or boost your bottom line, strong environment and social standards can help in these risky markets.”
Private equity as a broad asset class may well look to its emerging market sub-sector to save its besieged reputation.