Public Disclosure Authorized IFC and PrIvate equIty Development Impact, Financial Returns HOW TO CONTACT US GLOBAL reGiOnAL David Wilton, Chief Investment Officer SOuth ASiA eurOPe And centrAL ASiA/ and Manager, Global Private Equity Funds Vikram Raju in Mumbai middLe East And Public Disclosure Authorized [email protected] | (1-202) 473-6984 [email protected] | (91-22) 4230-2400 nOrth AfricA Peter Tropper, Baris Gen in Istanbul Chief Funds Specialist-SMEs East ASiA And PAcific [email protected] | (90) 212-385-3048 [email protected] | (1-202) 458-9124 Melissa Kang in Jakarta [email protected] | ( 62-21) 2994-8026 SuB-SAhArAn AfricA Umberto Pisoni, Portfolio Manager Kevin Njiraini in Nairobi [email protected] | (1-202) 473-9143 LAtin AmericA And [email protected] | (254-20) 275-9426 the CariBBeAn Nicholas Vickery, Portfolio Manager [email protected] | (90) 212-385-2528 Ralph Keitel in Washington, DC [email protected] (1-202) 458-5723 Jerry Wu, Lead, Climate Change Funds [email protected] | (1-202) 473-5946 John McNally, Communications Officer Public Disclosure Authorized [email protected] | (1-202) 458 0723 ifc.org May 2013 Public Disclosure Authorized COUNTRIES WHERE IFC-SUPPORTED IFC invests PRIVATE EQUITY FUNDS OPERATE $500 million each year in emerging market Algeria Former Yugoslav Republic Peru Argentina of Macedonia Poland private equity IFC AND PRIVATE EQUITY Bangladesh Ghana Romania Belarus Haiti Russian Federation funds—focusing Development Impact, Financial Returns Bosnia and Herzegovina India Rwanda on the frontier, Botswana Indonesia Samoa Brazil Kazakhstan Serbia increasing Photography Design Partner Bulgaria Kenya Sierra Leone Cambodia Kyrgyz Republic Slovakia impact, and John McNally/IFC IFC (page 14) Design Army Central African Republic Liberia South Africa Jason Larkin/Panos Pictures improving lives. BVCF (page 16) Chad Madagascar Tanzania Sara King/IFC Chile Mauritius Thailand (front cover) Alta Ventures (page 18) China Mexico Tonga Printing World Bank, IFC (inside cover) IFC (page 20) CÔte d’Ivoire Moldova Tunisia Croatia Mongolia Turkey World Bank (page 2) China Environment Fund, Westland Printers Tony’s Farm (page 22) Czech Republic Montenegro Uganda World Bank, IFC, and Democratic Republic of Congo Morocco Ukraine Inter-American Development Bank Inter-American Development Bank Egypt Nepal Uruguay (page 6) (page 24) Estonia Nigeria Uzbekistan Newpack (pages 26 and 28) Ethiopia Pakistan Vietnam Steve Okoko Fiji Papua New Guinea Zambia (pages 7 and pages 42-43) Fidelity Thompson (page 30) Fidelity Thompson (page 8) John McNally/IFC (page 32) Ernst & Young (page 10) Cogitel (page 12) Creating Jobs adding Value with hands-on adViCe raising enVironmental, soCial, and goVernanCe standards targeting Frontier markets MEssagE frOM the exeCutiVe ViCe President and CEO PriVate equitY: a ForCe For deVeloPment Private equity investment in emerg- Private equity ing markets stands at approximately $320 billion today—more than ever investment allocates before, yet still just a tiny fraction capital effectively, of the $2.7 trillion global total. generating returns for Building it further is a key part of IFC’s mandate of supporting investors while helping private sector development and emerging economies creating opportunity where it’s needed most. overcome poverty. I say this because 90 percent of the developing world’s jobs are Jin-Yong Cai created in the private sector, and Executive Vice President and CEO private equity investment is an es- pecially effective tool in building effectively, generating returns for private equity industry’s strong the dynamic, job-creating compa- investors while helping emerging combination of profitability and nies that drive economic growth. economies overcome poverty. development impact throughout In every industry—manufacturing, Private equity, in other words, is the world. Some good progress has services, technology, and others— a high-impact industry. It is one that been accomplished to date, as the local entrepreneurs are opening IFC must continue to help grow, just stories in this collection show. But up their shareholding structure to as we have since we first began to far more remains to be done. It is a outside investors, which then play support it in the late 1980s. We must challenge that IFC looks forward to an essential behind-the-scenes role be daring and innovative, focusing taking on, working closely with our in strengthening their privately on sustainability and making a busi- many clients and partners across held firms in ways that bring wide- ness case that ultimately will attract the board to create jobs, increase spread benefits. This is particularly far more capital from others than we incomes, and improve living stan- valuable in many developing coun- could ever supply on our own. dards around the developing world. tries where risk capital is scarce As we do, our work in private and institutional capacity is weak. equity must reflect the four compo- Complementing bank lending, bond nents of IFC’s brand: innovation, in- markets, microfinance, and other fluence, demonstration, and impact. forms of financial products, private Focusing on these points will Jin-Yong Cai equity investment allocates capital enable IFC to keep building the Executive Vice President and CEO 2 IFC’S PRIVATE EQUITY PORTFOLIO PriVate equitY is the risk capital that $2.7 billion investment funds place in unlisted companies. Invested in 153 Private Equity Funds* Often coming with valuable * Out of a $3 billion total funds portfolio since 2000 hands-on business advice, it helps investee firms grow over a period of % several years, then seeks 20 a profitable exit through Annual Returns* public listing or private * Pooled nominal internal rate of return as of June 30, 2012 on IfC’s vintage 2000-2010 private equity funds sale when its job is done. iFC, a member of the World Bank group and the world’s largest global 1,100 development finance Companies Supported institution, is one of the biggest players in emerging market private equity. 15% whY? Because private equity is not just good for Annual Job Creation across Portfolio business; it is good for development—bringing innovative products to market, raising environmental, social, 584 and governance standards, Jobs Created per Company (on Average) and creating jobs that reduce poverty. SOURCe: External consultant’s analysis of an IfC-provided dataset 3 introduCtion building shared ProsPeritY IFC and Private Equity: Increasing the Industry’s Impact The developing world has many sharp-eyed entre- The funds IFC supports help fill this gap. Our private preneurs with great business ideas, ready to build equity portfolio investees report 21 percent average an- first-class companies that will move their economies nual revenue growth. Increasing their market shares and forward. But a major obstacle often stands in their way: employee head count as they grow, many are evolving a lack of access to finance. It blocks them from moving into national, regional, and even global players. ahead, keeping them from hiring workers, increasing Private equity funds are the way to reach these incomes, and raising living standards. fast-growing companies that typically are not yet on Increasing access to finance is one of IFC’s biggest any bank’s radar. And as the commercial private equity priorities. We do it in many ways, working broadly industry has become well established in key middle- across the financial spectrum—including investing a income countries, since 2007 IFC has focused on the total of about $500 million a year in private equity funds poorer countries in the World Bank’s International boldly backing local firms that do not trade on any stock Development Association (IDA). In the poorest countries, exchange. We target three kinds of funds: we are often the first private equity investor. IFC has been the pioneer in emerging market pri- • Growth Equity Funds that target fast-growing vate equity since the late 1980s, helping it grow in that smaller and mid-size companies with good prospects time from fringe market to mainstream asset class. We for eventually going public or being bought out choose our partners carefully for maximum impact, • Small Business Funds to provide capital and ad- focusing on innovation and frequently supporting vice to SMEs in frontier countries or regions that first- and or second-time fund managers, strengthen- growth equity funds find difficult to access ing their role in the markets, and helping them attract • Venture Capital Funds for smaller, earlier-stage more capital from others. companies based around either new intellectual property or new business models In the industrialized world, private equity is some- times criticized for supporting highly leveraged trans- actions that bring companies down, leading to job losses. Not so in the developing world, where leverage ratios are much lower. There, banks typically do little cash flow-based lending to growing companies and bond markets are often underdeveloped, increasing the importance of equity. 4 HOW IFC BUILDS PRIVATE EQUITY FUNDS Our role is not just to invest, but to build this high-impact industry in four key ways: 1 setting standards • Showing that sustainability is good business • Holding client fund managers to high environmental, social, and governance standards 2 mobilizing CaPital • Being a first mover • Adding a trusted stamp of approval that attracts others 3 Pushing the enVeloPe • Testing the frontiers with funds for new countries and sectors • Supporting first-time fund managers with strong local presence 4 Creating knowledge • Monitoring results and impacts • Sharing lessons learned 5 introduCtion PriVate equitY and Climate Change Crisis and Response Climate change is the biggest challenge to development today. It is one that requires both government leader- ship and large-scale private sector action—and is a core strategic priority for IFC. In fiscal year 2012 alone, we in- vested more than $1.6 billion in climate-related projects. Bringing the capital, expertise, and innovation needed to help foster low-emission growth, private equity funds are a key component of IFC’s overall response to climate change within the World Bank Group.