LSE EMF: Private Equity in Emerging Markets

'Private Equity in Emerging Markets' panel
'Private Equity in Emerging Markets' panel

The first panel discussion for the 2015 LSE SU Emerging Markets Forum begun in earnest yesterday with an esteemed panel of private equity industry leaders, each having a wealth of experience in private equity investments in emerging markets.

 

The panel, chaired by Dr Jeffery Leonard, Chief Executive Officer and Co-Founder of energy and environment private equity titan Global Environment Fund (GEF), was quick to highlight from the outset the “evolutionary” and not “revolutionary” nature of the development of private equity activity in emerging markets. Steering the panel discussion, Dr Leonard soon gave panel members the opportunity to introduce themselves and deliver some opening thoughts and remarks.

Abraaj’s model is rooted on essentially deploying “boots on the ground”.

Taking his cue, Sev Vettivetpillai, Partner at the Abraaj Group with primary focus on the group’s sector focused funds, gave delegates an insight into the private equity model pursued by Abraaj (currently managing $8.5 billion in assets.) Vettivetpillai stated that Abraaj’s model is rooted on essentially deploying “boots on the ground”. What does this mean? Put simply, Vettivetpillai is alluding to the hefty 170 plus highly skilled indigenous investment professionals – collectively combining a vast accumulation of human capital – simultaneously with over 70 other professionals, such as consultants and sector experts. Vettivetpillai then goes onto to define Abraaj’s strategy of “growth capital buyout” with “sector preferences” which today includes consumer, financial services, (some) manufacturing and hints towards a potential expansion of Abraaj’s real estate activity.

 

Following swiftly onwards, Henri Obi, Chief Operating Officer at Helios Investment Partners – an African-focused private equity firm – contrasts Helios’ strategy, which Obi states has three main themes; investing in sectors that are “core to the functioning of the economy” (alluding to the example of Helios’ partnership with Vitol in the introduction of Shell-branded petrol stations across Africa), leveraging investments for domestic growth (such as town infrastructure) and investing in sectors with platform investors in order to “mitigate risk” by investing across different countries in Africa.

 Private equity is “increasingly not a get-rich-quick business”

Actis’ Mark Richards confidently brands Actis as the “United Nations of Private Equity”, referring to the firm’s global genetic make-up – it’s partner’s alone boast fifteen different nationalities. Whilst Alpha Associates Henry Potter, outlines his focus on Alpha’s funds of funds management in Eastern European markets.

 

Dr Leonard swiftly steers discussion towards the nature of the private equity industry, underlining his belief that private equity is “increasingly not a get-rich-quick business” calling it “humbling” due to it’s inherently long-term nature. Leonard poses the question to the panel of the ways in which private equity can add value. Obi reinforces Leonard’s earlier point of the long-term nature of the industry, citing the growing average length of private equity holding periods in emerging markets from five years to seven years today. Obi states his view that earnings growth through assisting management teams is crucial to adding value in African markets, deploying both investment and operations teams to focus on “assisting senior executives” within portfolio companies managed by Helios.

 Buy well and the exit is easy.

Richards emphasises the increasing importance for private equity firms to have “specialist skills” in order to survive in this competitive industry and the need for an “angle and an edge on every transaction.” According to Richards, central to this is the need for realism. Firms must be realistic and assess potential companies “extremely thoroughly in the first place” asking the questions such as “what is it’s potential?” and “what value can be added?”

 

Dialogue moves onto entrance and exit strategies, to which Vettivetpillai states that at Abraaj, every six months they ask themselves the question “is the exit strategy that we’re following still valid?” the rational being underpinned here is the dynamic nature of emerging markets which are in a constant state of flux. On interim exit strategies, Vettivetpillai’s advice is clear; “buy well and the exit is easy.” Richards contends that any private equity deal is “only as good as its exit” which arguably embodies private equity’s raison d’être. “Crystallize your returns from day one”, urges Richards with the stark warning of the dangers of being stuck with a failed transaction “in perpetuity”.

 

Managed to disseminate all of that? And most crucially, are you thinking that a career in private equity is unquestionably for you? Richards shares his views on the essential questions anyone serious about pursuing a career in private equity must confront head on; what will you contribute? Are you a rainmaker? Do you make things happen?

 

Richards asserts that top academic credentials – although a pre-requisite – simply aren’t enough for any aspiring individual to make it into this highly competitive industry. Being bright, making things happen and commanding an innate ability to communicate are crucial characteristics that will open the doors of opportunity into this unique industry.

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