The World Economic Forum should consider how participants can play more of a role in investing to fill the ‘missing middle’ equity gap in the emerging markets, according to Aureos Capital.
Aureos is a private equity fund management company specialising in investing in small and medium sized businesses (“SMEs) in emerging markets.
The “Missing Middle” refers to the funding gap that exists for SMEs in the emerging markets. While much attention has been placed on increasing access to debt for these businesses, Aureos says that there is still a huge shortage of professional, patient capital to address the challenges these businesses face.
Aureos has found that the businesses it invests in require a supportive institutional base, benefitting from the experience of Aureos’ local teams who provide additional input and advice to the SMEs’ owners/managers.
Aureos says that with the capital that it provides it has also been very careful to ensure that it is also helping to encourage entrepreneurship in its investee companies, fostering strategic managerial skills and helping businesses access a global network of sector specialists, investment/operating partners, and commercial relationships.
As leaders gather at the World Economic Forum to discuss the rebalancing of the Global Economy and the shaping of new economic models, Aureos says it believes that unlocking the value in SMEs in the emerging markets should play a central role in promoting growth and development.
Aureos says that the economic turbulence of recent times has highlighted the importance of supporting the growth of SMEs to create a balanced, sustainable economy. Such businesses have the potential to create significant employment in emerging markets as well as to provide essential goods and services for local needs. Whilst their potential has been recognised, there remains a significant funding gap for these businesses in the Missing Middle.
Sev Vettivetpillai, Chief Executive of Aureos, says: “Over almost two decades of investing in SMEs in emerging markets, we have seen the catalytic effect these businesses can have on their local and regional economies.
“Through innovative business models, small and medium enterprises are agile enough to adapt to changing market conditions. The resilience of businesses of this size to economic shocks is remarkable, because they can move quickly, adapt and utilise innovative technology.
“It is vital at this time more than ever, when we as a global community, as the private sector, are re-examining our role in building stronger economies, that we stand ready to incorporate non-traditional methods of funding and to build more inclusive businesses.
“SMEs are on a promising growth trajectory, have significant development impact and are best supported by equity investment from long-term investors. Thus far, this opportunity has not been widely recognised by institutional investors across the world.”
Aureos’ development impact is measured by the Aureos Sustainability Index, a system developed by Aureos. In 2010, Aureos portfolio companies supported 90,000 employees. These portfolio companies invested USD120m on new technology and USD5m on human capital development.
Vettivetpillai says: “We recognise the needs of the Missing Middle and are working together with our partner companies, our investors and other stakeholders towards solutions that go beyond simply filling the funding gap.”
