Lessons of Experience No. 2: Investment Funds in Emerging Markets

Working with institutional investors, investment banks, fund managers and government regulators, IFC has helped pioneer numerous fund vehicles in emerging markets. These include country funds, debt-equity funds, index funds, venture capital funds, private equity funds, local mutual funds, and private pension funds. This publication describes IFC's lessons of experience arising from this work.


84 pages | © 1996IFC | ISBN 0-8213-3676-2


 

Fifteen years ago, few people had heard of the term "emerging markets." International investors could not readily buy listed securities in most developing countries and few developing country firms raised capital from stock markets or from venture capital funds. Today over 60 countries have stock markets, and their capitalization has increased tenfold over the past decade. The number of companies listed on emerging markets has doubled in the same period.

Professionally managed investment funds of all types — ranging from funds investing in listed stocks to venture capital funds taking private stakes in start-up companies — have played a key role in fostering these changes. Investors have been attracted to funds by the advantages of professional management, portfolio diversification, better access to some markets and lower transactions costs. Equally, developing country firms have benefited from improved access to equity, more liquid markets, and, in the case of venture capital funds, management input.

The International Finance Corporation (IFC), working with institutional investors, investment banks, fund managers and government regulators, has been uniquely involved with promoting the funds industry in emerging markets. Through a mix of providing technical assistance to governments, investing directly, underwriting and placing privately, identifying managers and core investors, and sitting on fund boards, IFC has helped pioneer numerous fund vehicles in emerging markets. These include country funds, debt-equity funds, index funds, venture capital funds, private equity funds, local mutual funds, and private pension funds. Investment Funds in Emerging Markets describes IFC's lessons of experience arising from this work.

Investment Funds is one of a set of publications on capital markets issues that IFC is releasing in its Lessons of Experience series. Other publications in this set include a review of IFC's experience with leasing in emerging markets, and an overview of the Corporation's experience with helping develop the financial sector in emerging markets.

Since its formation in 1956, IFC has been investing in the private sector in developing countries, sharing full commercial risks without recourse to government support or guarantee. Strong growth in the 1990s has enabled IFC to play a leading role in areas that are newly opening for the private sector.