Michael Barth, CEO, Netherlands Development Finance Company (FMO)

1. Private Equity in Emerging Markets: An Introductioncontext, contribution, recent developments, and lessons learned Michael Barth, CEO, Netherlands Development Finance Company (FMO)

2. Private Equity:What and Why?

3. Clarifyingthe terminology • PRIVATE EQUITY--medium to long-term financial commitment (equity or quasi-equity) in illiquid securities, with the expectation that future company performance will generate liquidity and opportunity to exit with substantial returns.

4. Private Equity is the Risk Capital “in Between” Sponsor Financing - Start-up/ early stage - Absence of liquidity - High risk (no track record) - Lack of information base - No transparency - Family-run/ closely held Public Market - At least 3 to 5 years’ track record - Profitability - Acceptable accounting standards - Legal documentation - Professional management - Significant size

5. Who are prime PE candidates? Annual Sales Publicly trade companies Large* US $ 250 MM Target for Private Equity Medium*-size Companies, many family-owned $ 15 - $ 250 MM Small*, family-owned, informal economy Too small < $ 15 MM *Size definitions vary significantly depending on country’s size and level of economic development

6. The importance of private equity to emerging markets • Professionally managed Private Equity (PE) fills an important financing gap • PE stands at the apex of development finance; it is not just about financing business, but about building businesses • PE can have substantive effects on corporate professionalization, employment and export growth;support for the SME sector • PE is a potential building block for developing a stronger, more balanced financial sector

7. Context: Capital Mobilization Trends

8. Financial flows to emerging markets has seen a downward trend in recent years Source: IIF, e=estimate

9. Only FDI has been a stable, growing component Source: Global Development Finance, e= estimate

10. Capital mobilization in most emerging equity markets has been depressed in recent years Source: FIBV data for sample countries comprising Latin America -Mexico, Brazil, Chile, Argentina,Peru; Europe and Central Asia -Turkey,Poland. Hungary, Czech Republic,Estonia, Lithuania; Middle East -Egypt, Bahrain, Jordan, Oman, Kuwait; East Asia- Taiwan, Korea, Malaysia, Indonesia, Thailand, Philippines; Africa- South Africa, Mauritius, Ghana, Namibia, Swaziland

11. IPO markets have mirrored this downward trendNumber of New Firms Listed, Emerging stock markets, 1997-2001 Source: FIBV data, New issue data for Nigeria in 2000-2001 and Kenya 1999 unavailable

12. Focus on private equity: funds raised and invested; performance

13. Fund raising and investment trends ASIA (ex-Japan, Australia) LATIN AMERICA Sources: Compiled by Cambridge Associates from multiple sources including AVCJ, internal proprietary fund manager database, VE-LA Publications, and 3i/PWC.

14. Fund raising and investment trends MIDDLE EAST (Israel only) & AFRICA (South Africa only) CENTRAL & EASTERN EUROPE (incl. Russia) Sources: Compiled by Cambridge Associates from multiple sources including IVC, SAVCA/KPMG, EVCA, 3i/PWC and internal proprietary fund manager database.

15. Middle East (Israel only) 13% Africa 3% 3% 0% Latin America Emerging Asia (ex. Japan,) 11% 70% Emerging markets private equity investments by region Cumulative 1998-2001 2001 Middle East (Israel only) 14% Africa (S. Africa only) 4% Central & Eastern Europe Russia/NIS Russia/NIS 3% Central & Eastern Europe Emerging Asia (ex. Japan) 2% 59% Latin America 18% Sources: Compiled by Cambridge Associates from multiple sources including EVCA, AVCJ, MITI/Japan, VE-LA Publications, SAVCA/KPMG, IVC, 3i/PWC and internal proprietary fund manager database.

16. Returns on VC and PE funds (%) Note: Pooled end to end return, net of fees, expenses and carried interest Source: Cambridge Associates, LLC

17. A broader look at returns - Public Markets *Commenced November 1, 1984, **Returns of the one year period ending September 30, 2002. Source: Bloomberg, Venture economics

18. Performance: “Management matters” Source:Teresa Barger, International Finance Corporation "What is a Private Equity fund?”

19. Some of the important “lessons learned”

20. Private equity in Emerging Markets- Lessons Learned • Apparent critical need to adapt PE operations to the local environment • Management x 3; private equity is a craft, not a commodity; focus on additionality • Issues of critical mass, incentives • Deal flow, timing, acquisition prices • Issues of instrumentation, exit planning • Environmental issues, esp. those related to poor investor protection/corporate governance, basic domestic capital markets

21. A Closer Look: Different Perspectives on Private Equity • Analytical perspective • Dr. Roger Leeds, Johns Hopkins University School of Advanced International Studies • Practitioner’s perspective • Mr. Alejandro Schwedhelm, Managing Director, Darby Overseas Investments, Ltd. • Domestic/policy perspective • Mr. Alvaro Gonçalves, Managing Partner of Stratus (Brazil), Board Member, Venture Capital Association of Brazil • Investor’s perspective • Dr. Patricia Dinneen, Consultant, Cambridge Associates