Private Equity and Emerging Markets: Advice from Vanterra Capital

Shad Azimi, one of the founders of Vanterra Capital Ltd. was among seven panelists to discuss “The Financial Crisis:The Impact on Private Equity in Emerging Markets.” Azimi was able to add to the discussion his own personal advice for potential investors, especially as this subject relates to India as an emerging market.

The panel discussion took place at the Asia Society in New York City in May, 2009, where Azimi gave the following guidelines which he himself follows in order to avoid unnecessary risk.

• Look for markets for investments where there is a clear threshold of rule of law.

• Do not insist on the “Western” example of investing style. To quote Azimi:

“It does not work in local markets. In India, particularly, our experience has been ... that you can't take a classical LBO model and force it on India, where our experience has been that the best assets aren't necessarily for sale. If a family is willing to relinquish control of a very good business, you might not necessarily want to own that asset. We found that the best strategy in India was to take minority positions in blue-chip companies, and to work with those partners."

• Research and locate the correct global partner in the country you’re looking to invest in.

The last piece of advice is not new, but it is excellent advice.
It is a well-used strategy used by large firms, not just private equity in searching to minimize risk in emerging markets.

For instance, just recently the giant manufacturer of construction equipment, Caterpillar Inc. (NYSE:CAT) was reported to be close to closing a deal with Indian Manufacturer Mahindra & Mahindra Ltd. to begin operations in India. It has also been recently reported that Wal-Mart Stores Inc. (NYSE:WMT) is hoping to open its first retail shop in India as soon as this month, in a joint venture partnership with Bharti Enterprises.