Boston Consulting Group has published a study on emerging markets private equity, in partnership with IESA Business School. The main findings are fairly milquetoast:
- The most attractive emerging markets for investment must be determined not only by GDP, but also by level of socioeconomic development (e.g., regulatory systems, etc.);
- Successful emerging market investment strategies may differ from successful developed market investment strategies (e.g., focusing on non-control stakes, etc.).
What I did find interesting, however, was the performance data.
Up until 1999, emerging markets private equity lagged far behind its developed counterpart. Over the past 30 years, the IRR for emerging markets PE was just 12%, or around half of U.S. Or European private equity IRRs. Not too impressive.
But look within that 30-year figure, and you’ll find returns of 4.4% before 1990, 5.3% for the 1990s and 17.3% between 2000 and 2006. In other words, emerging private equity performance has steadily improved. Too bad the data isn’t a bit more current, but BCG argues that the emerging/developed gap has likely narrowed even more during the recent financial crisis, because emerging deals typically use less leverage.
