AIG Investments is a leading private equity investor in frontier markets and has developed a strong track record in those regions. With offices in Istanbul, Johannesburg, Cairo, Moscow and New York, the frontier markets team has the deep local presence, experience and market insight necessary to generate proprietary deal flow, negotiate and structure attractive risk-managed transactions and closely manage completed investments in rapidly changing investment environments. The frontier markets team is comprised of 16 investment professionals, many of whom have worked together investing in Africa, Turkey, Russia and the Caspian Region for the last 11 years. The team’s four managing directors have a combined 40+ years of experience in frontier market investing, including extensive periods of working together.
We view frontier markets as highly attractive for private equity investment for the following reasons:
Large populations with rapidly expanding consumer bases. Middle class populations have grown in the recent years, bolstering domestic consumption in the regions. The combined frontier market population base of 1.4 billion has an 8.6% 5-year GDP per capita compound annual growth rate (CAGR), an indication of the recent expansion of wealth. [1]
Significant economic underpinning of natural resources. Frontier markets, and Russia, Middle East and Africa in particular, hold a majority of the world’s oil reserves and significant mining resources. These assets have generated significant income that has been used to modernize and diversify economies, create domestic jobs and attract international investment.
Substantial intra-regional trade. Significant cultural and historical ties between Middle East/Africa and Turkey/Middle East have increased cross-regional trade to around US $60 billion in 2007. [2] Moreover, Turkey’s strategic location makes it the historic economic hub between Eurasia and Europe, as well as Russia’s largest trade partner.
Increasing M&A activity and FDI. This increase indicates industry consolidation opportunities and the potential to create regional business leaders. M&A deal value and FDI in frontier markets both quadrupled from 2003 through 2007 to US $204.8 billion and US $171.5 billion, respectively. [3]
Increasing acceptance of private equity. A growing number of entrepreneurs and family businesses have been open to private equity investment. Fundraising in the Middle East and Africa grew 40% year-over-year to US $7.4 billion in 2007. However, as this number represented less than half of a percentage point of GDP, it remains low compared to emerging markets and indicates significant room for growth. [4]
1. Source: World Economic Outlook Database, 2008. As of 31 December 2007.
2. Source: International Monetary Fund Direction of Trade Database.
3. Source: MergerMarket.
4. Source: Emerging Markets Private Equity Association.
