10 Updates

Private Equity Shifts Gears In Emerging Markets

Apr 22 2014, 6:51pm CDT | by

After surveying another year of disappointing results from their emerging market investments in 2013, many private equity (PE) investors that had enthusiastically piled into the big developing...

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13 weeks ago

Private Equity Shifts Gears In Emerging Markets

Apr 22 2014, 6:51pm CDT | by

After surveying another year of disappointing results from their emerging market investments in 2013, many private equity (PE) investors that had enthusiastically piled into the big developing economies of Brazil, Russia, India and China (the BRICs) are rethinking their emerging market strategies.

As we discuss in Bain & Company’s 2014 Global Private Equity Report , the problem PE faces in emerging markets is stark: General partners (GPs) are failing to deliver on the job their limited partners (LPs) hire them to do—to generate market-beating returns. Indeed, returns of emerging market PE funds have been trending lower for nearly a decade. Even the best performers’ results have dropped steadily from their vintage peak.

These are not the results that LPs signed on for when they shifted their attention to the fast-growing emerging BRIC economies from the deteriorating conditions for PE in the advanced economics after 2008. Emerging market funds raised since the financial crisis have underperformed their developed market counterparts. Although these vintages are still very immature and have booked few realizations of gains, their interim results are disappointing.

The emerging market behemoths, China and India , have disappointed most of all. With too much money chasing too few deals amid the expectation that double-digit GDP growth rates would endure, some PE firms rushed to close deals without adequately preparing for the risks of a prolonged slowdown.

Recent disappointment, however, has not caused PE investors to lose confidence in emerging markets’ prospects. Drawn by the allure of diversification, GDP growth and rising middle-class incomes, many LPs are planning to boost their exposure to the emerging markets. In a 2013 global survey of LPs, conducted by EMPEA, the emerging market private equity association, one-third of LPs indicated that they plan to increase the share of their PE allocation in emerging markets. However, the pace of new commitments will likely slow in light of the big infusions of capital into emerging market-focused funds from 2010 through 2012, the huge pile of dry powder still waiting to be deployed, and the struggle

GPs have faced trying to unwind portfolio holdings and return capital to LPs.

Absorbing the lessons of what has not worked well in China and India, GPs and LPs are broadening their horizons beyond the BRICs to seek diversification in markets that will offer the next wave of growth, including Sub-Saharan Africa, Southeast Asia and Latin America (excluding Brazil). Both investment deal value and targeted new fund-raising reflect the increasing importance of these rising markets (see Figure).

GPs are also embracing a more hands-on investment model. Most are no longer willing to settle for the purchase of passive minority stakes in companies whose entrepreneur owners are reluctant to cede control. Instead, they are increasingly likely to hold out for deals where they can exert influence over the assets they acquire.

As PE expands its geographic reach and deepens its activist approach to portfolio management, GPs will need to develop distinctive ways to create value in order to succeed. Five skills are paramount:

  • First, GPs will need to build a proprietary deal network with strong industry sector skill in order to capitalize on deal sourcing and acquisition.
  • Second, the leaders will over-invest in differentiated due diligence to surface a potential acquisition target’s relevant opportunities and downside risks. They carefully vet the companies they consider buying to ensure that these companies are well within the firm’s predetermined sweet spot; put early warning systems in place to get a fast read on potential problems and deal breakers; and involve investment committee members early in the purchase decision process.
  • Third, operating as owner-activists, top GPs develop and pressure-test their investment thesis and operating blueprint that will guide their management teams throughout the time the fund owns an asset.
  • Fourth, they start thinking about their exit path from day one, continuously tracking options and identifying potential buyers from the start and preparing the business accordingly.
  • Finally, they nurture a deep pool of local talent that possesses the regional and global perspectives needed to build the firm’s capabilities. Scarce professional and managerial skills in emerging markets require top GPs to custom-tailor strategies for attracting, retaining and developing their own home-grown talent.

Will GPs that adapt their investment models to match today’s more tempered realities ultimately be able to crack the code for emerging market success? Certainly, there is a deep need for the role PE firms can play in spurring their growth while rewarding their investors. What remains to be seen is whether a repeatable model for success in emerging markets can put that capital to work productively.

Read the full report: Global Private Equity Report 2014

Written by Hugh MacArthur, Graham Elton, Bill Halloran and Suvir Varma, leaders of Bain & Company’s Private Equity Group .

 
Update
10

7 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

7 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was brok ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

7 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by the D ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

7 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Datuk Seri Hishammu ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 milli ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minister Da ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allocation of RM20 mi ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Damansara Skyw ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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