Private Equity: Keeping the Faith in Emerging Markets

by Knowlege@SMU, 01 July 2011

0 comments

Facebook

Digg

Twitter

topics:
Finance and Banking

tags:
capital flows consumption emerging markets private equity TPG

The recent financial crisis has understandably left a sour taste in among many investors. Some have lost their appetites with earlier bets on complex financial products or high-risk investments in general. Others have retreated to the traditionally safe havens, avoiding all that is perceived as risky.

At a recent dinner, some bankers were rejoicing that their clients were showing renewed interest in emerging markets. However, they suspected this as merely a ‘flavour of the month’ phenomenon, a resurgence to be enjoyed while it lasts.

Not to Ashish Shastry, who was also at the dinner. “This is a secular trend, not a cyclical trend,” said the managing director and head of Southeast Asia at TPG Capital, one of the more prominent private equity firms in the business.

Before 2000, there was a close correlation between emerging markets and the developed world. “When the US sneezes, Asia would catch a cold. (But) that was a long time ago,” said Shastry. Since then, there has been a decoupling, as emerging markets chalk up growth rates three times that of the developed world. For China and India, the two developing Asian giants, the difference can be up to a factor of five to eight.

Shastry, an economics graduate from Princeton University who has been with TPG since 1998, was speaking as one of the presenters at the Private Equity/Venture Capital Symposium organised by the Singapore Management University’s BNP Paribas Hedge Fund Centre.

Consumption Story

Shastry argued that Asia’s emerging markets are one huge consumption growth story. At the same time, companies in the region are also increasingly developers of technologies and vanguard of trends.

For example, Tata Motors, part of India’s largest conglomerate, garnered attention by offering its home-grown Nano car at around US$2,000 apiece, even as a Rolls Royce vehicle found its youngest owner in the world, a 28-year-old, in China. Meanwhile, Indians, collectively, represent one of the largest groups of gold buyers in the world.

It is as much about mass and volume as it is about the diversity. Within emerging markets, said Shastry, some 500 million people will be elevated into middle class status over the next five years, helping to contribute what will be 60% of global consumption.

Furthermore, emerging markets have deep pools of labour, and capital – in an on-going bid for better returns – are easily drawn to cheap labour. Shastry cited the example of Grohe, the famous German maker of premium bathroom fixtures, which TPG has co-invested in.

When the 80-year-old Dusseldorf-based company was looking at expanding its manufacturing facilities, it was first drawn to consider lower cost European countries like Portugal and Slovenia, where wages were two-thirds lower that in Germany. But it discovered that Chinese wages were, in turn, two-thirds lower than those in the two European countries. In the end, Grohe settled upon the Thai province of Rayong, where it found not only low labour cots but also high-quality output, said Shastry.

Also, many emerging markets are playing increasingly important roles in the global context. Many of these countries, like Brazil, have massive natural resources, and the on-going global demand for energy and minerals means that emerging markets are taking a growing share of global exports from developed economies, especially Europe, he said.

Comment on this article

Your name: *

E-mail: *

The content of this field is kept private and will not be shown publicly.

Homepage:

Comment: *

Web page addresses and e-mail addresses turn into links automatically.
Allowed HTML tags: <a> <em> <strong> <cite> <code> <ul> <ol> <li> <dl> <dt> <dd> <a> <p> <span> <div> <h1> <h2> <h3> <h4> <h5> <h6> <img> <img /> <map> <area> <hr> <br> <br /> <ul> <ol> <li> <dl> <dt> <dd> <table> <tr> <td> <em> <b> <u> <i> <strong> <font> <del> <ins> <sub> <sup> <quote> <blockquote> <pre> <address> <code> <cite> <embed> <object> <strike> <caption>
Lines and paragraphs break automatically.
Use  to create page breaks.

More information about formatting options

Verification Code

This question is for testing whether you are a human visitor and to prevent automated spam submissions.

What is the second word in the phrase "eqa upino govuk uvim abe"?: *

Accounting and Regulations

CFO innovation Asia Accounting and Regulation the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Accounting Regulation, IFRS, US GAAP, Tax, investor relations, corporate governance, Corporate Law, Financial Regulators, Internal Audit, Audit, Corporate Law.

Auditing, Investor Relations, Law and Compliance, Tax

Finance and Banking

CFO innovation Asia, Finance and Banking the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Corporate Finance, trade finance, treasury and risk management, capital expenditure, Banking, mergers and acquisitions

Cash and Liquidity Management, Corporate Finance, Insurance, Treasury Management

Management

CFO innovation Asia the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Finance Management, Corporate Governance, Human Resource Management, Compensation and Benefits, Mergers and Acquisitions, Professional Development, Corporate Real Estate, Risk Management, Budgeting and Forecasting, Business Process Management, Business Process Reengineering, Outsourcing.

Budgeting and Planning, Business Expense Management, Human Capital Management, Outsourcing and Shared Services, Risk Management

Metrics

Corporates, Financial Services

Technology

CFO innovation Asia Technology the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Finance Systems, Business Intelligence, EPR, Accounting software, CRM, Cloud Computing, Telecommunications, Business Process Outsourcing, Business Process Management Software.

Business Intelligence, Enterprise Software and Systems, Financial Systems, Security