February 13, 2013
Interviewed by: David Snow
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Evolving LP Attitudes Toward Emerging Markets

Adiba Ighodaro, Director of Investor Development at global private equity firm Actis, gives an overview of changing LP attitudes toward the emerging markets, Actis’ focus. She discusses the shifting focus among LPs from perceived political risk to more practical risks like company management. Ighodaro also describes the knowledge her firm can bring to portfolio companies in one region that was learned in another.

Adiba Ighodaro, Director of Investor Development at global private equity firm Actis, gives an overview of changing LP attitudes toward the emerging markets, Actis’ focus. She discusses the shifting focus among LPs from perceived political risk to more practical risks like company management. Ighodaro also describes the knowledge her firm can bring to portfolio companies in one region that was learned in another.

Privcap: Do you find that LPs believe they need to be more aggressive in allocating to emerging markets private equity?

Adiba Ighodaro, Actis: When you ask the question, should LPs be more aggressive, less aggressive, I think it’s absolutely here to stay– that having a well constructed private equity portfolio must include having exposure to economies that are dominating the global economy, economies that, over the long term, will continue to grow, and economies where you’re still playing catch up in terms of investing in certain types of businesses or industries.

So you’ve got that opportunity to generate outsized returns. And there are many firms that do this benchmarking. Cambridge Associates is one of them. And they’ve got data that shows that over the three year or five year period, 50, emerging markets, private equity, has outperformed US private equity. So I think certainly, what I’m seeing some investors is a sense of help us determine what is the best mix to have.

Privcap: What commonalities does Actis benefit from as it invests across many different emerging markets?

Ighodaro: Certainly, in the power sector– I don’t know if you’ve ever walked around a power generation plant, but it’s a plant, it’s a plant, it’s a plant. It doesn’t really matter where it is. It’s exactly the same sorts of dynamics, same sort of contracts, long term contracts that you’re generating against. And actually, the exits are the same– the ability to aggregate individual assets into a business and then sell that to a strategic. You could do that on a sub-regional basis. You could do it on a broader basis.

But in the private equity business, you’re investing in companies that are at different stages of their life cycle. But if you look across the emerging markets, you’re investing against two major themes. And one of the major themes that everybody talks about, but is absolutely the case, is the rise in personal wealth and income and the consumer– the consumer theme.

And consumers are the same– I’m from Africa. Consumers are the same everywhere. They want the same things. They aspire to the same things. That has been, in fact, increased through the internet and just general globalization, where aspirationally, consumers are aspiring to the same things.

If you’ve invested very successfully in a business that’s producing personal care products at a certain stage in its life cycle, it is a very similar business to one that’s investing in a market where you’ve got, perhaps, less competition and it’s starting from a slightly lower base. But it’s a similar thing. You’re investing against the same sort of theme– the consumer and the rise in disposable income.

Privcap: How have traditional LP worries about the emerging markets evolved recently?

Ighodaro: Well, you still meet a lot of LPs who worry about all the standard things– political risk, currency risk, corruption. But I have to say that it’s been quite encouraging that the conversations that I have with investors today gloss over that quite quickly.

So it’s political risk, certainly, and particularly– you look across Africa, and Africa is a continent with many countries. But there’s always something happening. And clearly, we’ve had the Arab Spring in North Africa. So that has resurfaced. Political risk has resurfaced as a risk.

But I’m finding conversations with investors much more quickly move on to an appreciation of what the real risk, from our perspective, is, which is really just is management. It always boils down to do you have the right management? Do you have an adequate management team in place, which is a risk, which we work very hard to it.

But at the same time, as I remind my colleagues, it’s also the opportunity, because if you’re investing in businesses that have become quite successful in their own domestic market with a half cooked management team, you can supplement that. You can bring your industry operating expertise and very quickly make a step change in terms of the performance of that company.

So I think– and clearly, when you look at us, we invest quite a bit in Africa. And if I think through the questions that come up time and time again, it is about corruption. It is about political risk. But I think people understand that today, whereas before, it was much more difficult– that you can operate in a way without corruption. You can operate– you have greater stability around the trend, deregulation, and opening up of economies than historically people thought because of watching all the bad news that always gets more airtime than the good news.

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