With the huge amount of market uncertainty globally facing us all, writing the agenda for SuperReturn Emerging Markets this year was an enjoyable challenge. When looking at emerging markets, it is clear there is real mixture of macro and micro questions that need be addressed with equal importance. Despite a number of really interesting and diverse themes cropping up during the in-depth research process, there are a handful of questions that are unequivocally at the forefront of the minds of the PE and VC industry today, which we will be addressing at this year’s forum – and here they are:
What will the effect of recent seismic political events in the developed world have on emerging markets?
It very quickly became clear that the impact of the Trump administration and ongoing European political events is being felt far and wide, with this uncertainly creating nervousness for many investors. A number of major emerging markets, from Mexico to Nigeria, are waiting with baited breath to see how the changing political seas could impact their attractiveness as an investment destination.
"Emerging markets from Mexico to Nigeria, are waiting with baited breath to see how the changing political seas could impact their attractiveness as an investment destination"
Given the long-term nature of private equity, trying to gain clarity on what could happen and how best to manage various outcome seems to be a critical concern for both LPs and GPs today. How is this uncertainty affecting the pace of deal-making, as well as where and how GPs choose to invest? What impact is this having on the LP universe? Are North American and European commercial LPs preferring to invest closer to home or are they sitting tight? We want to help in the market’s pursuit for answers and this year’s programme is very much geared towards addressing these essential questions.
Do LPs believe that emerging markets are still a compelling place to invest?
It seems many LPs are still not comfortable enough to swap their notebooks for chequebooks in emerging markets and this appears to be a result of both questionable performance and concerns over risk. Ultimately, the market wants to know where and how LPs are choosing to invest, and the factors that are shaping these decisions, especially with regards to emerging market allocations.
Looking deeper into risk, interestingly, investors seem to weigh various risks quite differently but most frequently referenced were those relating to currency, governance, local politics and GP selection. The question around perceived vs real risk still seems to be very much up for debate, especially when comparing the risk of private equity in developed and emerging markets. How can we move away from the ‘CNN lens’ to ensure the risks concerning LPs are the right ones? It was also mentioned that the leverage-free nature of emerging market private equity is often overlooked, especially when compared to the very real risk of over overleverage in developed markets.
Coming onto returns, with more data available than ever before, how much more confident can we be in our analysis of emerging market private equity and venture capital performance? Currency depreciation has undeniably affected returns for a large number of funds and views on how performance should be measured vary significantly. Who should carry the burden of currency risk and how does it affect the way a GP’s performance should be viewed? Additionally, the seismic gap between net vs gross returns cannot be ignored. There is a strong desire to understand the LP perspective, how smart GPs are actively trying to manage this and whether co-investing could be a viable solution to lessening this gap.
Which new markets and old favorites are opening up?
It is an exciting time to invest in emerging market private equity, with a handful of well-loved markets reopening as well as more exotic, new entrants. In addition to the revival of major economies, there is a wish from investors to learn more about less traditional markets and this year’s forum will provide the chance to do exactly that.
So where will be shining the spotlight this year?
Brazil is first on the list. Having been sidelined for a sizeable length of time, the industry is questioning whether Brazil has finally bottomed out and if now is the time to put capital to work. For those taking the plunge, how are they determining the best way to capitalise on the opportunity? Which investment strategies are most compelling and why? Neighboring economics, including Mexico and Argentina, are also top of the list as markets to keep an eye on.
Has LP confidence finally been restored in India? There is a real buzz around India now and with such a vast array of funds to choose from, the skill will be in identifying the winners. Which GPs are built to last and which strategies, from VC to debt, will reap the greatest rewards?
Africa remains on the radar, although still seems to be deemed a riskier play compared to other emerging markets by many LPs – however, many would contend this! With a big question mark over Nigeria today, Francophone Africa seems to be the flavour of the month. How long will this last and how large is the scope to invest in this region?
We will also need to pay special attention to local events in Turkey, Russia, Egypt and other select economies. These markets are not the easiest to invest in and when timing is everything, there seems to be a desire to gather as much information as possible on these economies so that pioneering investors can are ready to invest when the time is right.
Lastly, something really interesting that I observed this year, is the desire to learn more about the opportunities presenting themselves in the ‘real’ frontier markets. From Central Africa to Afghanistan, I’ve had some fascinating discussions on the scope for investment in these less-traditional markets. A few LPs mentioned that the totally uncorrelated returns offered by these economies was a real attraction, so perhaps this is a key driver and these markets could be the ‘ones to watch’. With a number of new frontier GPs speaking at the event this year, I for one am looking forward to learning more!