New York – Emerging markets, but not necessarily the usual suspects, are generating increasing returns for private-equity investors and are likely to soon become one of the most attractive investment opportunities, according to a new study by The Boston Consulting Group and IESE Business School.
The study, titled New Markets, New Roles: Will Emerging Markets Reshape Private Equity?, was based on a dataset from the International Finance Corporation’s (IFC) which covered 176 emerging-market private-equity funds in 75 different markets. The study shows that the share of private-equity deals in emerging markets has increased from 5% to 30% over the last decade, rivaling the proportion of private-equity deals in the US and Europe (which accounted for 34% and 38% of deals, respectively).
The increased amount of private-equity deals in emerging markets is expected to continue at an accelerated pace. Not only the returns from these markets have more than tripled since the 1990s to over 17%, but also some of these markets are successfully achieving favorable socioeconomic conditions and economic scales attractive to investors.
In the last few years, headlines have been focused on the BRIC markets. However, the study argues that these markets are not necessarily the ones offering the best opportunities to investors. The study lists Turkey, Malaysia, South Africa, and Poland, as well as a couple BRIC members, Brazil and India, as markets with great potential. Markets such as Russia and Argentina appear to offer less potential according to the study. The study’s authors specify that the most attractive markets for private equity are not necessarily the biggest economies, but rather economies that display open markets, legal protection for investors, and liquid of stock exchanges.
The study concludes that the key success factors for investors interested in emerging markets differ significantly from those that have worked in developed countries. Investing models will have to vary in aspects such as accepting minority rather than majority stakes in businesses, investing in businesses focused on local markets rather than on international ones, and generating value via operational improvements rather than leverage.
The full report of the study, New Markets, New Rules: Will Emerging Markets Reshape Private Equity?, can be downloaded here
About the authors of the study: The Boston Consulting Group (BCG) and IESE Business School
Founded in 1963, The Boston Consulting Group is a global management consulting firm and an advisor on business strategy. The firm offers a customized approach with unique insight into the dynamics of companies and markets. BCG is a private company with 70 offices in 41 countries.
The IESE Business School of the University of Navarra has pioneered executive education in Europe since its foundation in 1958 in Barcelona.