Research

As 2012 came to a close, EMPEA reached out to a number of the industry’s leading practitioners to solicit their reflections on the year gone by, and to glean insights on the prospects for emerging markets private equity in the year ahead.

The Global Firms’ Views

Paul Fletcher, Senior Partner, Actis

2012 was an encouraging year for EM PE, with most investment themes continuing to show resilience. It was also reassuring to witness some of the political and economic risks, namely instability in Egypt and the much feared Chinese hard landing, playing out better than we hoped. We expect to see more and more large financial buyers hungry to acquire EM PE mid-market investments. We feel quietly optimistic about India, providing the government’s policy reforms take hold. As ever for Actis, Africa remains an appealing capital destination with significant demand for infrastructure, and high quality products and services. In October 2012, Actis closed Sub-Saharan Africa’s largest private equity real estate fund and we expect intense activity in this sector during the next 12 months. Currency continues to be a significant point for consideration. We saw a 5–10% discount on U.S. dollar returns because of volatility in South African, Indian and Brazilian currency. It’s a reminder to all of us to be mindful of managing this risk.

Arif Naqvi, Founder & Group CEO, The Abraaj Group

2012 was, in my view, a year that consolidated the growth areas of our global economy. Investors and GPs are recognizing that the opportunity lies in what we at Abraaj call the ‘global growth markets.’ From Latin America through Africa to Southeast Asia, we can see the strengthening of the South-South economic corridor, where private equity is increasingly recognized as an important source to finance the growth that will occur as a result of these emerging dynamics. Look at Africa as an example of this trend as of late: a number of new funds have been launched to target that vast continent. Seven of the 10 fastest growing economies in the world are in Africa— these are transformational shifts. I have said this before, and I continue to maintain that we are privileged to be living through these transformational times. On the macroeconomic front, the biggest megatrend by far is the pace of expansion in the growth markets being higher than that in the developed world. Many of these markets are characterized by a growing consumer class with increasing consumption power. This in turn is creating the need for infrastructure, health and education services, housing, logistics and transportation. Private equity has an role to play across the board in this exciting landscape. The main issue of concern will be how private equity creates long-term value and builds sustainable industries that will be equipped to succeed in the 21st century. This will entail robust governance and risk management systems, environmental and social strategies that are measurable and impactful, and an engagement model between the GP and LP that is founded on trust. Private equity can be a tremendous force for development; a catalyst for change through infrastructure development and employment as well as innovation. Indeed, I am convinced that private equity in the markets in which we operate belongs to Main Street and not Wall Street.