Professional Documents
Culture Documents
OED
July 2008
PrivateEquityFundOperations
Background
primarilyduetodisparityinthequalityofreporting andweakinformationmanagementsystems.Once fundingiscommitted,thedepartmentislargely dependentuponfundmanagerstoachievepositive developmentandfinancialresultsbyrelyingupona combinationofcommercialincentivesandasetofhigh levelinvestmentrestrictionsthathavelittlerelationship withdevelopmentobjectives.Asaresult,theoverall ratingforADBsworkqualitywaspartlysatisfactory. ADBadditionalitywasexaminedbasedonwhether ADBfinancehadbeenanecessaryconditionforthe timelyrealizationofinvestments,andADBs contributionandfunctionhadimproveddevelopment impact.ThestudyindicatedthatinthepastADBs participationhadprovidedadditionalitybycatalyzing privateinvestmentinprivateequityfunds.However, thisimpacthadbeendecliningovertimeduetothe continuedfocusonIndiaandthePeoplesRepublicof China,whereADBsdemonstrationandriskmitigation impactsforprivateequityfundshavebeendecliningin recentyears,asdemonstratedbytherapidgrowthin privateequityinthesemarkets.Duetoresource constraints,thePrivateSectorOperationsDepartment hadhadlimitedabilitytodirectlyaddvaluetoprivate equityfundoperationsandstrengthentheir developmentimpacts.TheratingforADBadditionality wasjudgedpartlysatisfactory. AssessmentofADBsPrivateEquityFundOperations
Criterion DevelopmentOutcomes&Impacts PrivateSectorDevelopment BusinessSuccess Environment,Social,Health& SafetyPerformance ADBInvestmentProfitability ADBWorkQuality ADBAdditionality U X PS X X X S X X X E
and(vii)theadequacyofresourcesformanagingthe privateequityfundportfolio. Recommendations ADBsManagementwasinvitedtoconsider: Strengtheningcountryprogrammingarrangements sothereisbettercoordinationwithinADBatthe countryandsectorlevelwhenseekingtodevelop thenonbankfinancialsectorforprivatesector development. Preparinganoperationalstrategyforprivateequity fundsthatwouldsetoutprinciplesformanagingthe overallportfolio,andidentifytargetedcountriesand subnationalregions,sectors,stagesoffirm development,stylesandsizesoffunds,anddesired developmentimpacts,forcirculationtoallregional departments. Upgradingportfolioplanningandmanagementand reportingsystemsforprivateequityfundsto facilitatemanagementasastandaloneportfolioand reinforcedevelopmentimpactmonitoring. Strengtheningtheriskmanagementsystemsfor privateequityfundsbyputtinginplacecapacityto independentlymonitorprojectspostapprovalfrom afinancial,social,andenvironmentalperspective. Clarifyingorganizationalrolesandresponsibilities, withparticularregardtomakinggreateruseof residentmissionsforoperationsinprivateequity funds,andtheneedtocomplementregional departmentoperations. Allocatingsufficientresourcesintheareasof budgetingandstafftoefficientlyandeffectively manageoperationsinprivateequityfunds. Feedback AtthetimeofpreparationoftheseLearningCurves, ADBManagementsResponseandtheChairs SummaryoftheDevelopmentEffectiveness CommitteeDiscussionswerenotyetavailablefor disclosuretothepublic.Thestudywascompletedin July2008. 1 ADB.2008.SpecialEvaluationStudyonPrivateEquity FundOperations.Manila.Available: http://adbweb/Documents/SES/REG/SSTREG2008 17/SSTREG200817.pdf
Legend:E=excellent,PS=partlysatisfactory,S= satisfactory,U=unsatisfactory. TheoverallassessmentofADBsprivateequityfund operations,asjustifiedbytheunderlyingratingsfor developmentoutcomesandimpacts,ADBinvestment profitability,ADBworkquality,andADBadditionality waspartlysuccessful. Thestudydiscernedissuestouching:(i)the developmentjustificationoffunds,(ii)thebalancein ADBsportfoliobetweenprivateequityfundsand directequityinvestments,(iii)lackofstrategicfocusof fundoperations,(iv)styledrift,(v)weaknessesin managementreporting,(vi)theorganizational frameworkforprivateequityfundoperationsinADB,
Learning Curves available @ www.adb.org/evaluation/