The Rise of MDFI Investments in Private Equity Funds

Abstract

This article examines the recent and dramatic rise of emerging markets private equity fund investment programs within multilateral development finance institutions (MDFIs). Data is presented from eight MDFIs with more than $12.5 billion currently committed to private equity fund investments. Primary rationales for establishing these programs include developing financial markets, supporting infrastructure, promoting growth in SMEs, encouraging clean energy, deploying capital efficiently, and fostering restructuring, transition, and efficiency. This article also examines MDFI staffing, fund selection, fund management, fund creation, and performance reporting practices. Questions are raised about the impact of MDFI involvement on fund performance, the dilemma of selecting new versus proven fund managers, the effectiveness of passing down social and environmental safeguards, and the possibility of expanding fund performance assessment to include developmental as well as financial metrics.

TOPICS: Private equity, emerging, quantitative methods, performance measurement