Preqin Investor Intelligence currently tracks 1,367 private equity investors that have previously committed to funds focusing primarily on opportunities within emerging markets. With a growing number of opportunities for investment in these regions, there is often a strong focus on development and sustainable investing. International Finance Corporation (IFC), an independent arm of the World Bank, is one such organisation targeting opportunities in emerging markets financing private sector investment with the aim of catalyzing economic growth. The US-based government agency is looking to commit $500mn across 20 to 25 private equity vehicles over the course of the next year, an ongoing strategy that it looks to implement every year.
In 2012, nearly half of all IFC investments, including those to private equity vehicles, focused on opportunities in International Development Agency countries, some of the poorest countries in the world as identified by GNI per capita. So far in 2012, IFC has made capital commitments to funds focusing on opportunities in Africa, India, Russia, and Eastern Europe, as well as a venture capital fund focusing on rebuilding and recapitalising Haitian businesses damaged by the 2010 earthquake. Overall, IFC has committed capital to 10% of all emerging markets-focused private equity funds that have come to the market since 2000.
Organisations such as IFC, that invest as part of a developmental agenda, do so in order to encourage progression in industries, while at the same time creating jobs through the expansion of companies. For IFC, this manifests itself in a preference for growth and expansion or late stage venture funds, though buyout funds will be considered if there is sufficient leverage within the market. When considering fund commitments, IFC holds social and environmental sustainability as key factors within the process. A major aim for the agency is implementing best market practice in terms of due diligence, so as to establish the private equity industry within the target region in a responsible manner.
IFC is a major supporter of first-time fund managers, with more than half of all its private equity commitments being made to teams that have not raised a fund together before. In this respect, the focus is on local managers which show potential in the industry - a substantial portion of IFC backed first-time fund managers go on to become major players within their region, such as CDH China and GP Investimentos. This policy of actively supporting first-time fund managers as part of a development strategy is not exclusive to IFC - the African Development Bank views the support of local entrepreneurs as a key component of its role, with the Asian Development Bank and CDC Group taking similar standpoints. Overall, 69% of investors that have previously invested in emerging markets either actively target first-time funds (including spin-offs), or would consider doing so if an attractive opportunity were to arise, compared with only 62% of all private equity investors.
As investments in emerging markets become more accessible and investor interest in these regions increases, the importance of establishing positive long term trends is apparent. In-flows of foreign capital to under-developed regions can provide much-needed liquidity to important industries and sectors, while supporting and encouraging local entrepreneurs. Private equity, with its “provision of equity capital and expertise”, is likely to remain an attractive option for organisations such as IFC that pursue developmental agendas within these regions.