Keynote Address: Navigating Global Growth markets
Arif Naqvi, The Abraaj Group’s Founder and Group Chief Executive, inspired the audience with his message on future opportunities in Global Growth Markets (GGM). He urged investors to look beyond the market uncertainty that dominates the headlines, and focus on the potential in numerous emerging markets where fundamentals point to a secure future: population trends, along with urbanization, will both drive enormous increases in consumption. And opportunities will be not about the macro, Naqvi advised, but about the micro. Private equity invests not in countries, but in companies and teams. Finally, beyond simply making a profit, private equity can make a positive difference to the lives of people in emerging markets in ways such as increasing economic growth, improving healthcare, and providing goods and services that people need and deserve: “We can do well and do good.”
The Big Picture: How are Global Investors Making Decisions?
Investors on the panel converged around several key themes, such as lower return expectations — viewing 7-8% as unrealistic and even 5% as difficult—and the challenges posed by the macro situations such as the volatility of the U.S. dollar. But as Gavin Wilson of IFC AMC noted, where the perceived risk of investment is higher than reality, it can be an attractive place to invest. Panelists went on to discuss risk mitigation approaches—notably diversification and, as OPIC’s Elizabeth Littlefield notes, ESG standards as well as markets where the government is making serious efforts at private sector reforms. Zeroing in to discuss opportunities in infrastructure, Scott Minerd of Guggenheim Partners favored opportunities in greenfield infrastructure over brownfield, and Larry Hatheway of GAM also pointed to a vast opportunity in public infrastructure.
Can Emerging Markets Private Capital Investments Generate Attractive Returns in a Slow Growth Environment?
Echoing the previous plenary, in a discussion led by Neil Brown of Actis, panelists discussed the macro challenges putting pressure on returns. Nevertheless, good returns are possible, and Dianna Gonzales-Burdin of Strategic Investment Group noted that the drop in oil prices provides a benefit to some economies. Reinforcing the importance of the micro, panelists emphasized that investing in solid companies still provides opportunities for successful performance—particularly when backing excellent managers who know how to handle their environment, noted Michael Wallace of Albright Stonebridge Group. Sameer Sain of Everstone further advised: “Strategy is overrated; execution is underrated,” as many markets have particular challenges that need local expertise to navigate and resolve. Panelists also agreed that ESG is an excellent way to help mitigate risks and improve investment performance. According to Michael Calvey of Baring Vostok Capital Partners, it leads to higher multiples and less regulatory risk. Rounding out the session, panelists also expressed optimism in areas such as the consumer goods sector, Indonesia, and even Brazil and Nigeria, provided that the right managers are involved.
Interview: Exploring the Top Ten Emerging Markets of Tomorrow
Dan Keeler of the Wall Street Journal interviewed author Gavin Serkin about his book Frontier: Exploring the Top Ten Emerging Markets of Tomorrow. Serkin arrived at his list—Kenya, Myanmar, Romania, Argentina, Vietnam, Nigeria, Egypt, Saudi Arabia, Sri Lanka, and Ghana—after visiting these markets and consulting established emerging markets managers. His most surprising takeaway from his visits was that corruption and violence weren’t distant concepts; he saw from some uncomfortable encounters that they are unfortunately very much part and parcel of the daily experience. If he did a follow-up to add other countries, Serkin offers Iran, Cuba, Bangladesh, and Pakistan—considering population size as well as well as “a sense of momentum”, which could encompass political change or evidence of reforms.
A diverse panel of private equity investors from India spoke to a lunchtime audience about the challenges of the market, including high valuations. A key takeway was the importance of looking seriously at strategic sales partners (where there is a growing demand in India). IT/IT Services, Financial Services, and Pharma, as well as VC and Logistics, were cited as sectors for opportunities.
Creating Value and Maximizing Opportunities: What Does Private Equity Bring to the Table?
During this panel discussion on creating value for portfolio companies, an overarching theme was the fundamental importance of aligned interests with the promoter. It is the starting point of value creation, notes James McGuigan of Capital Group Private Markets. Deep sector knowledge is also critical to finding the right path to value creation. Cyril Odu of African Capital Alliance said, “It’s hard to add value if you don’t know the business.” Jonathan Colby of The Carlyle Group cited an example (from China) of how his firm uses its robust network to embed experts into its portfolio companies, such as through non-exec directorships. Fund managers also offered their insight on creation value through ensuring exit-readiness. Nabil Triki of Swicorp advised planning the exit even before the deal is transacted and noted that “the best value creation plans are simple”, enabling a fund manager to focus only on doing 3-4 things well, rather than too many more. Toure Hamada of Amethis Finance, along with McGuigan, again echoed the importance of the due diligence phase—making sure that the business owner is genuinely interested in an active partner, agreeing on the same path to liquidity.
Rapid Fire: Q&A with Limited Partners
Roger Leeds of Johns Hopkins SAIS led the discussion asking the LP panel to what extent they take issue with the idea that LPs are writing fewer, larger checks to a few big fund managers? The panelists offered a range of responses representing the diversity of the institutions on stage, including Caisse de dépôt et placement du Québec (CDPQ), University of Texas Investment Management Company (UTIMCO), the Los Angeles County Employees Retirement Association (LACERA) Investments and the Institutional Limited Partners Association (ILPA). Roberta Brzezinski of CDPQ noted that while they can’t make investment that are too small, they can find creative fund managers and put them into business. Richard Rincon of UTIMCO asserted that fund size wasn’t an issue, stating “We can adapt to fund sizes.” David Simpson of LACERA Investments suggested that they may veer away from the largest managers. ILPA’s Peter Freire rounded out the discussion with what he is hearing from his membership of over 300 LP institutions. With a nod to GPEC 2016, Simpson noted that they are leveraging conferences like this one to meet as many managers as they can.
Other dynamic sessions from yesterday’s Main Conference Forum included:
- Regional Breakout Sessions: Sub-Saharan Africa, Brazil, China, Latin America,
- Deal Structuring for Success
- Powering Global Growth – Energy & Infrastructure Investments
- And more!
Keynote Interview: The role of Innovation in Emerging Economies
The opening panel led by Patricia Dinneen, Senior Advisor at EMPEA, discussed trends of innovation extending both to, and from, emerging markets. Will Poole of Capria Accelerator noted that to spur more innovation, local talent is not the barrier—it’s a lack of early stage capital and what he termed “mentor capital,” which Capria’s program for first-time fund managers is seeking to address. Poole stressed the importance of building the local ecosystem, rather than trying to invest globally from a remote hub, and Quona Capital’s Monica Brand Engel also reinforced that strong local ecosystems translate into more attractive markets for her firms’ investing. In terms of South-North innovation, the panel cited historical instances and shared examples of today’s growing trends. Carolyn Freund, of the Peterson Institute for International Economics, cited an Indian pharma company enhancing generics and expanding through a U.S. presence. Also noting that women are dramatically underrepresented in large-scale entrepreneurship, panelists shared a desire to support more women fund managers and entrepreneurs, agreeing that the presence of women in a company results in better performance. Looking forward, Poole pointed towards health care as a promising sector for innovation, noting that “We can’t doctor billions of people into wellness; we have to empower them,” which provides commercial opportunities for those who enable this to happen.
Keynote Interview: The Rising Importance of Key African Economies
Okechukwu Enelamah, Nigeria’s Minister of Industry, Trade and Investment—and a former private equity professional—shared his thoughts on the future of Nigeria’s growth during a keynote interview with Aubrey Hruby, co-author of The Next Africa. While acknowledging commodity prices’ strong negative impact on the economy, Enelamah expressed confidence in his government’s ability to implement “sustainable solutions, rather than knee-jerk reactions,” including investment climate reforms which can unlock business potential across industries. Another way forward is selectivity in industries where Nigeria has a competitive advantage—such as agribusiness, petrochemicals, and light manufacturing—and, which can alleviate foreign exchange issues by reducing imports.
Emerging Market Corporate Credit: Risks and Opportunities
In a session led by Prakash Mehta of Akin Gump Strauss Hauer & Feld LLP, panelists provided insights on the global credit markets. Neil Shearing of Capital Economics commented, “Don’t conclude that there is an emerging market debt problem. It’s a China problem and a Brazil problem.” Panelists explored in depth the outlook for various types of debt in sectors and other geographies—with MassMutual Financial Group’s Bruce Stanforth weighing in on Europe, and Gulf Credit Capital Partners’ Walid Cherif discussing the Middle East. Panelists were invited to share their forecasts on the future, to which Robert Petty of Clearwater Capital Partners (and EMPEA’s Chairman) responded that there are real “survivors in sectors”: companies which, among the dozens in their industry, are strong, and which can benefit from industry consolidation. Cherif saw lending to SMEs as a significant opportunity, while Petty noted that alternative lending in Southeast Asia also looks promising. Then, returning to the big picture, the panelists cautioned that as valuations recover, increased volatility is likely to become a reality.
Going Further Faster: Scaling Investment in Clean Energy
Rachel Kyte, CEO of Sustainable Energy for All (SE4All), delivered a “call to action” for investors to help deliver, and capitalize on, the international community’s virtually unanimous commitment to reduce carbon emissions. She noted that reducing energy consumption will require vast change, but with this comes opportunity—for solutions in clean energy generation, clean buildings and transport. Kyte cited an annual US$310 billion opportunity in global energy efficiency markets, mostly in emerging markets cities, and urged the audience to gear up for these opportunities. She concluded by noting that the energy sector, currently with only 6% women, requires more diverse teams to guide it through change. As the investors of the future, Kyte told the audience, you need to build the teams with the diversity that contributes to long-term success.
Keynote Address: Energy Reform in Mexico and Broader Prospects for Latin American Investors
Pedro Aspe, Mexico’s former Finance Secretary and now with Evercore Partners Mexico, walked the audience through a number of reforms the Mexican government has taken to increase economic growth. These focused on the following four themes: financial, telecommunications, energy, and labor. In the telecommunications sector, for example, long-distance prices dropped 45% due to the introduction of competition, and policies on importing gas from the U.S. eased prices significantly during emergencies. Reforms take a long time, and are not easy, Aspe noted. He cited the example of a 10-year process of negotiating 43 treaties to enhance the manufacturing sector. But this has paid off, he explained, with manufacturing now representing 79% of all exports, reducing Mexico’s dependency on commodities exporting. Aspe assured the audience of the tangible benefits that come from taking a slow but steady path to reform.
The afternoon’s robust set of breakout sessions allowed participants to hear from practitioners across a number of emerging and highly relevant topics. While a set of GPs discussed deals and trends in Emerging Europe, another panel of fund managers spoke in the Southeast Asia panel about the private equity landscapes in Vietnam, Thailand, Mynamar, and the Philippines. In the following pair of breakouts, investors examined the outcomes of thoughtful fund structuring—from the Impact Investors panel that discussed how their strategies were creating successful exit outcomes to the Terms and Conditions session, where the panel explored ways that investors can achieve terms that create better alignment of interests. Later in the afternoon, another pair of breakout sessions explored challenges and opportunities across several different markets and regions, from Venture Capital to Mitigating Currency Risk. The last set of breakout sessions covered both Sustainability Best Practices, with panelists noting how far the industry has come in adopting ESG standards, and understanding its benefits; and, Co-Investments, where both LPs and GPs shared their views on how they approach these unique investment opportunities.
The Perfect Pitch
At this year’s Perfect Pitch, two presenters braved the main stage in front of a panel of expert judges and the audience. The presenters were praised for eloquent deliveries and convincing messages, though both were advised to be clearer from the outset about whether or not they were looking for funding at this time and how much they needed from investors. Participants and panelists debated how to strategically balance mentioning critical details, while keeping to a concise format of 2 minutes. The audience warmly congratulated the two brave presenters who set the bar high for next year!