IFC sees upswing for private equity in emerging markets

08:49, May 12, 2010      

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IFC, a member of the World Bank Group, forecast Tuesday a brighter outlook for private equity investment in emerging markets as economic growth picked up.

It said the pick-up provided investors an opportunity to achieve strong returns as they helped create jobs and improve living standards.

IFC Executive Vice President and CEO Lars Thunell said the developing world’s faster growth and lower debt burden made it less vulnerable to cyclical downturns and a more attractive destination for private equity.

"It is the early stages of a recovery that are the most promising times to invest for private equity,” Thunell said at IFC’s 12th annual Global Private Equity Conference, held here in association with the Emerging Markets Private Equity Association (EMPEA).

The performance of IFC's 2.6 billion dollar private equity portfolio has been impressive. Between 2000 and the end of 2009, IFC's private equity funds had an internal rate of return of around 18 percent.

"Private equity in developing countries is based on growth, not leverage," Thunell said. "It is not as risky as people think."

Investors haven't been the only beneficiaries. Companies in IFC's private equity portfolio have employed almost 300,000 people since 2000.

Job creation at those companies, two-thirds of which are small and medium enterprises, far exceeds regional averages. That development impact is behind IFC's decision to boost its equity investments.

In response to the financial crisis, IFC scaled up its target for private equity fund investments from 400 million dollars to 900 million dollars this fiscal year.

The effort has mobilized capital in some of the world's poorest countries, including Cameroon, Malawi, Sierra Leone, and Bangladesh.

Haydee Celaya, IFC Director, Private Equity and Investment Funds, said domestic growth rates drove returns on private equity investments in emerging markets. Nearly two-thirds of companies in which IFC-backed funds had invested were focused on domestic or regional growth opportunities.

"We are committed to emerging market private equity and want to see a broader investor base," she said.

IFC is a leading private equity investor in emerging markets, with a portfolio that includes more than 160 funds. About one-fifth of its commitments are in Africa, where IFC's equity investments have averaged annual returns of around 20 percent.



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