Private equity can be a critical source of financing in emerging markets—especially for innovative small and medium enterprises in places where debt financing is limited and capital markets are less developed.
Investors and funds that take stakes in these companies not only help them expand but also provide other benefits—such as creating jobs, generating taxes, and filling gaps in service.
“In our experience, private equity can deliver good returns and have a positive impact on the poor. For me, this is the Holy Grail—making a profit and having an impact,” said Philippe Le Houérou, executive vice president and CEO of IFC, at the opening of the 18th Global Private Equity Conference.
The event this week in Washington, D.C., brought together about 800 private-equity fund managers, institutional investors, and other representatives from the private-equity sector from more than 60 countries.
The global economic slowdown and its impact on investment return over the next few years was one of the key topics of the conference. Several panelists agreed that investing in financially sound companies still provides opportunities for successful performance—especially if investors look beyond the market uncertainty and focus on the potential of markets where fundamentals point to a secure future. Urbanization and other population trends, for example, can drive substantial increase in consumption, noted Arif Naqvi, founder and CEO of the Abraaj Group, in his keynote speech.
Participants also stressed the benefits of adopting high environmental and social standards as well as the importance of having qualified fund managers, with local expertise, to help companies navigate the challenges in the environment in which they operate.
Impact in challenging places
IFC is one of the largest investors in private equity funds in emerging markets, with more than $5 billion invested in 280 funds. We invest about $500 million a year in private equity and mobilize additional investments through our subsidiary Asset Management Company (AMC). This has supported about 2,000 companies.
Our work in private equity is comprehensive: besides improving the regulatory framework, we help train local fund managers and coach them in best practices, and find local businesses that have potential to grow. We bring our environmental and social standards and policy requirements to all the funds in which we invest.
IFC’s fund managers take minority positions, becoming partners of the companies they invest in. Many of them offer practical advice to help companies prepare for challenges they will face as they expand—such as improved marketing strategies and employee management practices.
We want our funds to deliver not only good returns but also leave a positive impact on those who need it most, so we launched many of them have in some of the world’s most challenging places. In the Democratic Republic of Congo, for example, our fund Central Africa SME Fund helped Congo Call Center upgrade its technology and expand its workforce.
In the Middle East and North Africa region—where the youth yearns for jobs and stability—we supported the African Development Partners, a pan-African private equity fund that invested in Algerian pharmaceutical distributor Biopharm. The firm is increasing domestic production of generic, affordable drugs as the country expands health care services to its people. Biopharm is now making plans to grow across the region.
We are often the first private equity investor in some of the world’s poorest countries. In Bangladesh, for example, we worked closely with the World Bank and regulators to create a legal framework to enable private-equity investment to flow into the country of 170 million people—a third of whom live in poverty.
Despite the current turmoil in global markets, private equity in emerging markets offers many opportunities to have a positive development impact.