Private Equity in Emerging Markets: Beyond the BRICs

By Stephen M. Sammut, Wharton MBA 1984; Senior Fellow, Wharton Health Care Management; Lecturer, Management Department

Private equity and venture capital investment opportunities (I will refer to both as “PE”) in the headliner countries of economic growth captured the attention of the investment community as far back as the early 1990s. Although there was a cessation of interest for about seven years surrounding the turn of the millennium, by the early 2000s there was renewed interest and, despite the financial crisis, there has been steady growth of PE in the BRIC countries. The story of PE in emerging markets, however, does not end here. PE activity has blossomed in virtually every region and has reinvigorated entrepreneurship, companies and entire industrial sectors.

To put the level of PE in perspective, let’s review some of the trends as published by the Emerging Markets Private Equity Association (EMPEA) in February 2013.

Funds raised for emerging market private equity peaked in 2008 at US $67 billion. Not surprisingly, it took a dive to $23 billion in 2009 but has steadily climbed to $40 billion in 2012 (the US was $134 billion in the same year; Western Europe, $22 billion). From the capital raised, there has been a steady investment in companies of approximately $25 billion. Capital raised for emerging markets as a percentage of global PE has now reached 20 percent. As a percentage of global investment in companies, emerging markets have garnered 12 percent.  Those are good numbers, but it gets even more interesting when looking at growth by region.

Emerging Asia (not including Japan, Australia and New Zealand) has reached $25 billion. Russia and the CIS have nearly recovered to their 2008 levels at $5 billion, thanks in part to stimulus by the Russian government. Latin America hit a post 2008 peak in 2011 at $8.5 billion, but was about half that for 2012. Brazil has been the beneficiary of much of that investment but now there is concern that the Brazilian PE market might be overheated. We are seeing steady expansion of the MENA region to over $500 million. Sub-Saharan Africa is enjoying a steady flow of approximately $1.5 billion per year over the last few years.

Let’s get back to the point of the non-BRICs. Brazil, Russia, India and China actually had declines in new capital from 2011 to 2012 for an aggregate $15 billion. Remember, above we said that $40 billion went into emerging markets last year, including the BRICs. Where did the rest of it go? Countries like Columbia, Chile, Peru and Mexico have seen remarkable growth. Several African countries, such as South Africa, Kenya and Nigeria, indeed, the whole of SSA, have witnessed a growth in the number of fund managers and capital under management. Turkey has emerged as a destination, as have Malaysia, Thailand, Vietnam and, now Indonesia. The International Finance Corporation (IFC), the private sector arm of the World Bank, deserves a lot of credit in paving the way for PE activity in these former “frontier” markets by providing capital to fund managers long before other financial institutions saw the potential.

These new players in PE still have work to do in improving the PE ecosystem. Management capacity building is high on the list, as are appropriate laws and regulations, tax treatment, and acceptance of contractual provisions. Interestingly, the governments have recognized the role of PE in their industries and are motivated to make the needed changes. Other issues to consider include entrepreneurship and managerial capacity building, the evolution of the legal environment and other elements of the ecosystem. My aim is to increase awareness and insight into how this asset class will spur continued global economic growth.


StephenSammutBio: Steve has a career that is both commercial and academic. Outside of Wharton, Steve is Venture Partner, Burrill & Company, a merchant bank and venture capital fund focused on the life sciences and health care. His role there is organization of overseas venture capital funds, particularly in the Asia-Pacific region and Africa. During his 20 years at Wharton, he has created eight courses throughout the University that he has taught to nearly 8000 students. Steve’s primary areas of research coincide with his venture activity: health care and biotech capacity building in the emerging markets; private equity and venture capital approaches to economic development; and, the role of the private sector in addressing needs in global health. He can be reached at