Development institutions, with remits to provide financial support to aid emerging market country development, are an important source of capital for private equity funds. These institutions typically rely on the experience and “on the ground” expertise of private equity fund managers, with either local or international funds with a regional focus, to efficiently allocate resources to private sector companies. These institutional investors typically focus on small and medium sized enterprises in emerging markets, which represent the foundation for the future economic development of these regions.
UK-based European Bank for Reconstruction and Development (EBRD) is one such institution that invests in emerging markets focused private equity funds. Its focus is on central Europe, stretching to the Western Balkans and Central Asia. It recently committed USD 10 million to the Mongolia Opportunities Fund, a growth equity fund focused on services and manufacturing, food processing and food supply sectors in Mongolia. EBRD has been a prolific private equity fund investor since its inception in 1991, committing to over 100 private equity funds.
US-based International Finance Corporation (IFC) also committed to Mongolia Opportunities Fund, and is another example of a development institution with a history of investing heavily in the private equity asset class. It is the private sector arm of the World Bank Group and its focus is on private sector investments in the developing world. In 2000, it formalised its private equity fund investments, creating a specialised department to monitor opportunities to invest in such funds. IFC has made over 100 commitments to private equity funds, the most recent of which was a USD 10 million contribution to Catalyst Fund I – a growth equity fund with a focus on mid-sized companies in Eastern Europe.