Private Equity in Emerging Markets- Case Study of Turkey

Use of private equity as a source of finance is gaining increasing acceptance as markets become more volatile and financial institutions impose strict requirements for accessing credit. The volatility of financial markets dissuades investors from participating in such markets thus making it difficult for entities to get adequate funding through such markets. With regard to access to credit, small firms face a challenge of acquiring the right security to access long-term credit, a situation that is aggravated by the information asymmetry in the industries in which they operate (Wu, Song & Zeng 967-968). In such an environment, the opportunity for private equity as an alternative source of financing has arisen.

On the perspective of investors, institutional and individual, private equity offers a way to invest in unregistered securities of public and private entities through professionally managed investment vehicles (Fenn, Liang and Prowse 2; Ismail 20). Although regarded differently in Europe and the US (Fraser-Sampson 4-6), both venture capital and buyouts are forms of private equity in the sense that they involve investment in illiquid assets, i.e. investments not quoted on stock markets, through organized limited partnerships (Cumming and Walz 727). However, despite such illiquid reference, investors in private equity can exit their investment in the private equity funds by transferring their interests and obligations (e.g. capital calls) to secondary investors (who could be other individual, institutional or funds of funds entities) (Fraser-Sampson 6-7). The focus of this review is thus on private equity as defined inclusive of venture capital, rather than private equity as a reference to LBOs. The literature review will evaluate private equity as an asset class, private equity in developed countries and private equity in emerging markets, narrowing down to the market in Turkey. In reviewing the literature, the evaluation will focus on aspects such as fund initiation and set up, investing-investment strategy, portfolio management and exit-divestment of the investment.

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