The popularity of the BRIC countries within the private equity (PE) marketplace in recent years has been well documented. Brazil, Russia, India and China have enjoyed well over a decade of having the status of one of the countries to invest in if you’re looking for high returns.
However, with each of these four countries facing its own individual set of circumstances and problems, all of which are having a detrimental impact on the wider economy and the PE marketplace, investors and PE firms have started looking elsewhere.
BRIC’s in Decline
Reports related to the problems of emerging markets are often targeted at the BRIC nations, but the firms that are turning away from these four countries are finding plenty of opportunities elsewhere within this sector. Southeast Asia and Sub-Saharan Africa are often the two locations cited as emerging market opportunities, and it is here where CNBC says a lot of attention is now directed.
The Emerging Markets Private Equity Association recently released a study demonstrating that non-BRIC investment reached $11billion in 2013. While this was still a minority of the total percentage invested in emerging markets (44%, with 56% invested in BRIC nations), it is a significant step forward considering how dominant the BRIC group has been historically.
Aly Jeddy, of The Abraaj Group, told CNBC, “Investors are certainly looking beyond the BRICs, acknowledging that consumer driven growth is accelerating most in these new markets. Investors are increasingly as wary of BRICs hype as they are weary of the unattractive returns many of the funds in these markets have delivered.”
Where Has the Money Gone?
The biggest reason behind the sudden, relative lack of interest in the BRIC nations is that some of the world’s biggest PE firms are now raising general funds. When the BRIC nations were specifically being targeted, these funds would do specific fundraisers targeted at these countries. Investors would see the title as “Brazil Fund” or “China Fund” and get on board.
While these have not gone out fashion due to a failure to meet fundraising targets or any other similar reason, investors are now investing in general funds that are invested when a suitable opportunity arises. If this opportunity is not in a BRIC nation, then the money goes elsewhere.
Emerging Markets: Today’s Focus
Given that a recent Ernst & Young report for the African Private Equity and Venture Capital Association highlighted average exits on returns as being 20% higher in Africa than in North America, it is no surprise Africa is a focus for PE funds looking at emerging markets and the PE landscape in general.
Abraaj are one of many firms to be looking to capitalise on the gentrification of Africa, adding to his earlier quote, he told CNBC, “Abraaj’s focus is on helping the growing middle class in our markets achieve its consumptive aspiration. The sectors that interest us are food and healthcare and education and others like them that benefit from the young demographics and the rapid urbanization of our markets and do so regardless of the macro environment.”
The downside to the lesser developed emerging markets is that lucrative investment opportunities are fewer, but this is sure to change in the coming years.