THE reputation of the private equity industry has been under attack once again. In the UK, troubled private equity backed companies such as Southern Cross care homes have been the subject of high-profile negative press coverage; internationally, music giant EMI has struggled to service its debts. But private equity in emerging markets is a reminder of the other side of the story. Firms like mine are focusing on growth capital investing: finding companies with potential and helping them achieve scale, always with a keenly-observed respect for the bigger picture.
Today, there’s wide recognition of the power of business to do good by doing well. It is no longer unusual to hear a company talk about creating good social and environmental outcomes during the normal course of its business. And investors in private equity, too, are increasingly keen to work with fund managers who can demonstrate their commitment to these principles so that they can feel reassured that their money is being put to good use at the same time as generating excellent returns.
Given some of the preconceptions over governance issues in emerging markets, it might seem unlikely that regions such as Asia and Africa can offer up shining examples of best practice in value-creation for shareholders in companies that are also growing responsibly. And yet that is precisely why hundreds of private equity professionals are descending on London this week for an event called Capital Impact, hosted by the Emerging Markets Private Equity Association (EMPEA) – to share success stories from their portfolios and to debate how to keep raising the bar.
From the perspective of economic growth, emerging economies are leading the world. In a year when the IMF has downgraded the UK’s 2011 growth forecast to 1.1 per cent and the Eurozone is in crisis, the return potential of Africa stands in stark contrast: it has enjoyed 10 consecutive years of GDP growth that exceeds the world average. The IMF is forecasting that seven out of the 10 fastest growing countries in the world over the next ten years will be in Africa. Ghana already records as much as 13 per cent growth and Kenya is forecasting a very healthy 5 per cent. The growth is fuelled by Africa’s rising middle class driving demand for goods and the kind of services we take for granted in more mature markets – bank accounts, mobile phone connectivity, insurance – and it is supported by the continent’s abundant natural resources.
Look closely and emerging markets are generating compelling evidence that it is possible to grow companies quickly and responsibly without compromising on their performance. Returns of 15-20 per cent are not unusual across the industry, generated from companies that take their social and environmental obligations very seriously indeed.
Marie-France Mathes is the head of investor relations at Emerging Capital Partners, a dedicated Africa growth investor with $1.8bn funds under management. For examples of the positive impact private equity can have on emerging market companies and communities, and for investors, visit EMPEA online: