Highlights of the 21st IFC-EMPEA Global Private Equity Conference in Washington DC, 13-15 May 2019

IFC (International Finance Corporation)’s 21st Annual Global ‪Private Equity Conference in association with‪ EMPEA (Emerging Markets Private Equity Association) took place on the 13-15 May at Ritz-Carlton, Washington, DC. EMPEA Turkey Representative and Globalturk Capital’s Founder and Managing Partner Barış Öney has attended the event and he has also moderated the Turkey session.

Significant topics were discussed throughout the event. These topics are like;

Trends in EM Private Equity:

• Growth tech, growth equity, consumer branding, logistics, cold storage, healthcare services and fintech investments are growing within the IFC portfolio.
• Despite all the challenges, according to IFC, opportunities still come from consumer access to products and services.
• Technology is becoming dominant in EM.
• Private credit is becoming more of an asset to invest.
• Asia has decoupled from the EM and GPs are on demand in Asia.
• Venture fund raising has tripled and reached to $30 billion in 2017 and 2018.
• Majority of LPs are investing in technology (73%) and early stage venture (51%) in EM.
• DFI commitments are growing in venture capital.
• India, China and South East Asia are attracting VC tech investments.
• Private credit returns lie between 13-14%.
• Many family owned businesses don’t like to give away equity. So private credit works well, especially for SMEs.
• Non-Asia EM are less invested but pose many opportunities.
• GP due diligence requests from the LPs have been greatly changed and selection of GP managers have become a lot more diligent especially on ESGs.
• 42% of World population is in a region from MENA to India and is growing. Since 2000, EM investing has been growing in general. Therefore major pension funds and ones who have not invested in EM yet, have been focusing more into EM lately. They believe the conditions are favorable to invest now.

Challenges in EM Tech Investing:

• EM tech investing is certainly becoming big. Growth via innovation is big in EM.
• However early stage investing is very different than investing in big companies. There is limited data, limited track record, difficult to do even due diligence. One definitely needs to have teams on the ground.
• Early stage investing is tougher than normal investing since there is no proven business model. So one basically needs to trust the management and assess the sector to the best of his/her ability.
• Telecom infrastructure is very important for start-ups. So Governments need to play a key role. Privacy and cyber security issues are important for Governments to take a key role. Also need Competition Policy in those areas. Data protection rules are important.

Challenges in the Developed World which Is Effecting EM:

• There is slow growth in Europe causing investments to reduce.
• This does not help reduce poverty.
• The build-up of debt and transparency in EM is an issue to be dealt with. There are disclosure matters.
• The current system assumes a high standard of lending. But for EM and many developing countries it is not the case. New rules and regulations are necessary.
• Impact investing is important.
• Have serious issues in developed countries today which is affecting EM.
• Due to the rapid developments in technology, communities are losing jobs, breaking down etc.
• There are numerous areas of underdevelopment within developed countries which poses huge problems.
• Skills are changing from manual to tech solutions.
• Getting people from the bottom to a normal paying job environment is a huge challenge.
• There is also a power shift from local level to national level to EU level for example. So the local areas are trying to get power back like in the case of Brexit.
• Solutions lie within the local communities to overcome. Local communities need to work on their problems in the neighborhood so they can generate more business for their districts and get richer.
• Emphasis on localization is a down payment for the future.

Why Invest in EM?

• Infrastructure on digital platforms in EM like mobil, internet etc are well established and therefore the basis of innovation is there.
• Some business models currently being innovated in EM, will soon be shifted to developed markets.
• EM entrepreneurs are mostly mission driven rather than making money.
• 60% of VC dollars are spent outside the US today, where there was none 20 years ago. This will make a huge impact on EM.
• Rule of law, stable macro, independent central bank etc. needs to be there as the basis.
• Investments into healthcare and education like “profit for purpose” themes are becoming important in EM.
• 4 billion mobile internet to cloud, data, machine learning etc. is setting the scene in EM. Facial recognition, AI is developing fast.

Predictions on the Macro Supporting EM Investments:

• US Congress is not likely to do structural reforms until the next elections.
• Recession not likely until after the next presidential election.
• 5 trillion dollars are going into Private Equity investments today to get better returns. PE outperformed public markets.
• 15-16% returns are good today, down from 20-25% returns in the recent past.
• Probably a good deal will be done between the US and China. They don t want to break talks. Probably in summer. It won’t solve all the issues but is expected to be a good trade deal.

Where is a good place to invest now? EM of course. Why?

• The word EM was invented in early 80s.
• Higher growth, less competition etc.
• But the EM is not good nowadays so this is the time to invest when everyone thinks it is not a good investment.
• EM will come back. Good deals can always be found. The greatest rewards will come from there.
• When PE started decades ago money came from the family offices. Then it started coming from the pension funds and sovereign wealth funds. But now family offices are becoming big again.
• They have more appetite for EM, since they can take more risk than some institutions.
• EM in the long run will have more returns than developed markets.
• 17% of PE is EM now. Eventually this will go to 40-50% levels.

David Rubinstein “Find a goal for humanity and help other people or society. People helping others are happier. And happier people live longer. Philanthropy means love humanity.” 

Hilda Ochoa Brillembourg “The most human of professions is investment management. Investors are managing uncertainty and doing a most noble calling. They are helping people manage their lives better.”

In the last 40 years:

– We reduced inflation
– We reduced regulation
– World GDP is tripled
– Trade has quadrupled globally
– Securitization has gone 5 fold.

The murky future:

– Governments share of GDP will grow. Lower growth, lower creation of wealth growth are becoming larger.
– Shocks to democracy and free markets will be here to stay for a while.