CIVETS Economies: Appetite for Private Equity – September 2014

by Luke Goldsmith

  • 01 Sep 2014
  • PE

Brazil, Russia, India and China have often been regarded as the primary focus of private equity investment in emerging markets, but a sub-set of economies has emerged with some anticipation that they will experience growth similar to that of the BRIC countries.

The CIVETS acronym came to prominence in 2010 and represents six emerging market countries: Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. They are considered to be very promising for investors owing to their sophisticated financial systems, controlled inflation and fast-growing, young populations in comparison to other frontier markets.

Preqin’s Fund Manager Profiles show that there are a number of private equity firms actively seeking opportunities across the CIVETS region. Currently, 74 private equity firms focus solely on opportunities arising in at least one of the CIVETS countries. Additionally, the region is home to 151 private equity fund managers, with South Africa-based fund managers representing 53% of all fund managers in the CIVETS region. Turkey-based fund managers are the next most prevalent, with 13% of fund managers in the CIVETS region, followed by Colombia (11%), Vietnam (9%), Egypt (8%) and Indonesia (6%).

The top two CIVETS-based firms in terms of aggregate capital raised over the last decade are Egypt-based Qalaa Holdings and Actera Group, headquartered in Turkey. These firms have raised $1.9bn and $1.3bn respectively in total funds over the last 10 years. Interestingly, the top five firms have raised 49% of all the capital raised out of firms based in these countries.

Emerging markets such as CIVETS countries are exciting environments conducive of strong growth, and provide an alternative to traditional markets for portfolio diversification, thus reducing overall portfolio risk. Typically, these regions have undergone or are in the process of undergoing political and economic reforms striving toward greater liberalization, privatization and international trade and foreign investment, all of which fundamentally drive growth. It is therefore unsurprising to see that 73% of private equity firms that focus solely on the CIVETS countries deploy a growth investment strategy, either exclusively or in combination with other strategies.

The CIVETS states encompass countries in transition, which are attractive to investors because of the growth potential that can be translated into outsized returns. Getting investors onside with positive economic policy will further enhance growth prospects. For instance, Colombia’s reinvestment of oil revenue in infrastructure or South Africa’s relaxation of regulation helps drive fund managers and investment to the region.

Although unlikely to rival the economic might of India and China or the resources of Russia and Brazil, the CIVETS could become the next countries to profit from a shift in global power. With CIVETS-focused ETFs and other investment vehicles gaining traction in the financial markets, it won’t be long before investors start committing more capital to alternatives-targeting CIVETS countries.

Continue browsing industry reports, publications, conferences, blogs and more on Preqin Insights