Venture capital and private equity investment moving from mature to emerging markets

  • Share

London, 6 November 2012 – Global investors continue to put their faith in big emerging economies like China, according to the 2012 Global Venture Capital and Private Equity Country Attractiveness Index, a study published by IESE’s International Center for Finance Research and EY. Investors are particularly attracted to China´s deep capital market liquidity and strong performance in stock market trading and public issues. The study also highlights the strong performance of smaller emerging economies in North Africa and the Middle East, despite the recent turmoil of the Arab spring.

The index ranks 116 countries and measures their attractiveness for venture capital (VC) and private equity (PE) investment using six key drivers: economic activity, depth of capital market, taxation, investor protection and corporate governance, human and social environment, and entrepreneurial culture and deal opportunities. The six drivers are weighted based on their actual importance for VC and PE attractiveness.

Emerging markets, and in particular the BRICs (Brazil, Russian Federation, India, China and South Africa), continue to received substantial attention and VC and PE flows in recent years. VC and PE investment in China (ranked 22nd) remains the most active globally, closely followed by India (32nd). Brazil (36th) has seen substantially improved investment conditions and South Africa (26th) is already highly ranked, thanks to the establishment of a similar legal and capital market orientated culture.

Andrea Vogel, Europe, Middle East, India and Africa (EMEIA) Strategic Growth Markets Leader at Ernst and Young comments:

“The fast-growing economies, large populations and catch-up potential of the BRICs countries continue to be attractive to investors. However, when looking closely at the shift from mature economies toward emerging markets, the study also shows that although the BRICs and other emerging markets provide many investments opportunities, growth and wealth creation, they are often too confined to certain regions and small elites.”

Unsurprisingly, in light of the sovereign debt crisis, Greece, Iceland and Ireland all dropped places – with Ireland falling eight points over five years. Meanwhile, Latin America has emerged as a focal point for investors and has seen increasing activity by local PE funds and new entrants alike.

This year’s winners
The study also reveals that overall the United States (1st), Canada (2nd) and the UK (3rd) achieved the top ranking positions – with Canada and the UK swapping their 2011 positions. Many Middle-East and African countries saw a significant increase in their investments attractiveness. Despite recent political turmoil, Tunisia and Egypt achieved significant ranking — a result of the strong development of their capital markets and improvement in corporate governance quality.

Morocco also has favorable economic growth prospects and has increased its M&A and debt market liquidity. While Saudi Arabia saw substantial improvements in its economic outlook, M&A market, and human and social environment.

Andrea concludes: “The BRICs and other emerging markets provide many investment opportunities for VC and PE. However, it is still challenging in many of these markets to get access to high-quality transactions because of the relative immaturity of the institutional deal-supporting environment. Therefore, their attractiveness is mainly driven by investors’ desire to put them on the world map of potential countries for allocation of funds in the future.”

Notes to Editors
The top 10 countries in the 2012 index are:

1. United States 6. Hong Kong
2. Canada 7. Australia
3. United Kingdom 8. Sweden
4. Japan 9. Germany
5. Singapore 10. Switzerland

About the Index
The aim of the index is to serve the investor community through the analysis of comprehensive socio-economic data, as well as to provide a tool for policymakers who seek to boost entrepreneurial activity, economic growth, and access to finance for SMEs. The study is available at http://blog.iese.edu/vcpeindex.

In 2011, the index was broadened from 66 to 80 countries and this year the index was expanded again to 116 countries. The expansion reflects the growing importance of emerging economies and the appetite investors have to take risks with new markets. Africa is prominent among the newcomers, with a total of 31 countries represented, compared with last year’s eight.

About EY
EY is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

EY expands its services and resources in accordance with clients’ needs throughout the CIS. 4,000 professionals work at 19 offices in Moscow, St. Petersburg, Novosibirsk, Ekaterinburg, Kazan, Krasnodar, Togliatti, Vladivostok, Yuzhno-Sakhalinsk, Almaty, Astana, Atyrau, Baku, Kyiv, Donetsk, Tashkent, Tbilisi, Yerevan, and Minsk.

For more information, please visit: www.ey.com.

EY refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.