The vast majority of investors in EM private markets pursue growth in one country or region. In aggregate, this has the effect of creating opportunities for the much smaller number of value-driven global investors with specialized EM skills.
Meanwhile steady advancement of emerging markets naturally expands the actionable opportunity set for value investors. Emerging markets gradually evolve and mature, allowing for more sophisticated deal structures and approaches, even as they beneficially remain arguably the least efficient asset class in the world.
Minority shareholders in plain vanilla deal structures without significant governance rights remain vulnerable, but creditor rights are increasingly respected and enforceable. Bankruptcy codes, in various stages of development, exist in many jurisdictions. Progress is uneven, but, in general, efficient win/win restructurings are increasingly commonplace, allowing an appropriate variation of the special situations toolkit from developed markets to be effectively utilized in emerging markets.
Opportunities missed by local investors
Emerging market private markets investors focused on one country or region are often limited by mandate to buying existing businesses utilizing traditional equity structures. This leaves significant opportunity for the relatively few investors with the necessary global networks and orientation to agnostically execute across markets, offer customized capital solutions, and, together with world class management teams, create important new businesses that fill voids in the marketplace.
Middle market companies operating globally (or with global aspirations) often find it hard to obtain capital given that most emerging market private equity investors have a limited geographical mandate. Moreover, Albright Capital's global networks and proven ability to support global expansion make us a partner of choice for these companies.
Generalized Misconceptions of Actual Political Risk
Generalized misconceptions of political risk are a driver of EM inefficiency and opportunity for those with the necessary navigational skills. There are many good companies (and attractive assets) in out-of-favor jurisdictions or circumstances. For us, there are no red or green lights attached to sovereign risk, there is always a yellow light. We avoid hasty conclusions based on summary judgement of sovereign level risk and, supported by valuable information networks, do the resource intensive work of comprehensively analyzing each situation on its own merits. Care is taken to ensure that our investors are adequately compensated for sovereign risk via sufficiently high returns and/or valuable diversification benefits.
EM Corporate Credit
The emerging market corporate credit market is now larger than the US high yield market, after rapid, quantitative-easing-driven growth since the Global Financial Crisis. Issuers have become more sophisticated and idiosyncratic restructuring opportunities (delivering inherently low correlation) should persist for a long time.
Distressed Credit Opportunity
Increasing corporate leverage within the emerging markets since the Global Financial Crisis and a heavy maturity calendar in the next few years should create a significant emerging market distressed credit opportunity.
Currency and other losses
Recent currency and other losses in country and regional emerging market private equity funds have caused the usual investor base for those funds to retreat, creating an opportunity to support a select group of orphaned portfolio companies with much-needed follow-on capital, including structured capital on attractive terms.
Given recent difficulties in conventional EM PE, many firms have been unable to raise subsequent funds and traditional sources of capital to buy secondary LP interests may not be available, given their heavy reliance on continuity of the GP.