Data & Intelligence

Expanding Institutional Investment into Emerging Markets via Currency Risk Mitigation

Currency risk is one of the top concerns of investors in emerging markets private equity (“EM PE”) funds, inhibiting institutional investment into emerging markets broadly, and into frontier markets in particular. With nearly 75% of EM PE funds being denominated in U.S. dollars, local currency depreciations can have a material impact on institutional investors’ returns. To wit, nearly 25% of the capital invested in EM private capital deals between 2013 and 2015 has been deployed into countries that have experienced a depreciation of 30% or more against the U.S. dollar during the same period, placing strains on investors’ portfolios.

In the face of this persistent challenge, why has hedging currency risk proven to be so difficult for private equity firms? USAID’s Office of Private Capital and Microenterprise (PCM) sponsored this project, “Expanding Institutional Investment into Emerging Markets Via Currency Risk Mitigation,” to glean a clearer understanding of the problem, and to identify potential currency hedging mechanisms that could catalyze private capital flows into developing economies.

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EMPEA has served as a useful reference platform for CDPQ by helping to define the eligible universe of fund managers in growth markets. Membership provides background data and a...

Rashad Kaldany | Executive Vice-President and Growth Markets, CDPQ

The developed markets have no equivalent to the role EMPEA is playing as a convener and source of trusted information in the emerging markets.

David Rubenstein | Co-Founder and Managing Director, The Carlyle Group