Private Equity is the buzzword in the business circle. If you go by the trend, it is where you see a considerable amount of big money flowing. So, now the task at hand for the managers is not to crack a deal anymore but to identify the right investment opportunity. The Limited Partners or LP need a lucrative prospect, every single time. They are eager to see their money grow and most importantly reach them on time.
A Different Path from the History
Years of working in the market, and you know that those dream private equity investments are tough to come across. If you take a glance, top private equity firms are concentrated in the North America and Western Europe demography. But, the search for that top notch deal is driving many managers to the emerging market pasture.
If you do some number crunching and statistics juggling the last eight years have seen a growing trend of assets under management for emerging market-focused private equity firms. 2010 saw $254 billion going in the market, which grew to $564 billion by 2016.
Why did Managers Look at Emerging Markets?
So, the next thing we ask ourselves is why is the shift towards emerging economies that fall short on liquidity factor? The traditional markets of The USA have seen some political instability off late. Brexit and the aftershocks are still a mystery and hordes of guesswork. The managers, when look at their home turf sees, an aging populace with a slump in birth rate aka not many youthful promises coming up. They look the other side and see a youthful population climbing up and ruling the roost.
But, an average AUM of 21% since 2006 for Emerging market-focused Private Equity is not a revolutionary boom. If you see there are just 14% of private equity firms, who work out of the emerging markets. There is a cautionary tale doing rounds of top private equity firms when it comes to emerging market. These overt caution moves are courtesy, a home-ground bias and the perceived political and economic instability in certain regions.
Perceptions do Change
However, managers are trading emerging market waters and clinching those unicorns of private equity deals. The first plus is the spurt of a young working class that will grow with time. So, the market boom for emerging market is here to stay for a long time. The middle class of Asia and Africa is a thriving and prospering populace. For the top private equity firms, it looks like their salad days in the emerging market.
Technology is great for bridging the gaps in the economy. And emerging economies are taking the best out of it. They do not have the tall task of integration with the old gothic (figuratively not literally) structure as the developed world. They can start from the fundamentals and build a brand new world. A great GP investment opportunity is brewing right at their doorstep.
So, the potentiality is immense and you can be amongst the first to establish a name in the field of private equity. However, you need a thorough research. Not all emerging markets are politically stable. Do your research and take that first well-informed step.