Highlights from the 18th Annual Global Private Equity Main Conference Forum – Day One
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.”
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.
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.
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.
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.
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!