Part of the Global Horizon Fund’s objective will be to provide expansion capital to foster sustainable development in an environmentally sound manner, through companies engaging in fair labor practices. To foster such goals, the Global Horizon Fund will adopt socially responsible investment principles into the guidelines of each of the underlying Funds.
Incubating a Culture of Venture Capital
One of the Global Horizon Fund’s long-term goals is to change the nature of private-equity investments to focus more on early-stage venture-capital-style investments, while adapting to the local environment and not trying to replicate in full the U.S. formula. To date, with the exception of some regions of Asia Pacific and Central Europe, the vast majority of private equity in developing countries has been aimed at large infrastructure projects (such as the AIG Emerging Markets Funds), large scale privatization projects, or corporate restructurings (see “Private Equity in Developing Countries,” Josh Lerner, Harvard Business School). Advent International, perhaps the best-known private-equity firm operating in emerging markets, focuses the majority of its investments in later-stage buyouts and recapitalizations of established and profitable businesses.
Between 1992 and 1998, for example, when foreign direct investment increased at a compound annual growth rate of 19% in Asia, 27% in Eastern Europe, and 19% in Latin America, “only a handful of the largest companies were capturing these private sources of financing” (see “Private Equity in Emerging Markets,” Roger Leeds and Julie Sunderland, Journal of Applied Corporate Finance, Spring 2003). In Brazil in 2000, a World Bank report recorded that 40% of private bank assets were invested in government securities, which crowded out investment in small private companies. In Egypt, approximately 70% of foreign direct investment goes into the petroleum sector (Economist Intelligence Unit). Thus, in countries that already attract significant foreign direct investment from multinationals and private-equity firms, the Global Horizon Fund can play a unique role.
The reluctance of private-equity investors in developing nations to make the kinds of early-stage investments that U.S. venture capitalists specialize in can be attributed to a shortage of technical and management talent, infrastructure, legal and commercial codes, and adequate exit opportunities. The Global Horizon Fund will seek countries where signs of legal and code reform, along with increased capital velocity, point to significant downstream exit opportunities.
Laying a Foundation for Wealth Creation
The Global Horizon Fund will seek to establish a private sector framework with public sector support and participation to inculcate a culture of private equity as an effective means for job accelerated growth creation and enhanced innovation and competitiveness in developing economies. Drawing on the American experience of the past two decades, the Global Horizon Fund will seek to create a structure and a process by which investment capital can be combined with entrepreneurial skills to break through the vicious circle of economic stagnation and public sector inefficiencies by laying a foundation for job and wealth creation.